Napster Aims to Compete Through Ad-Supported Free Music Streams

More advertising could give Napster a revenue boost, but whether a new ad-supported model gives the music service an edge over its main rival, Apple’s iTunes, remains to be seen. In an effort to ease users towards its paid subscription service, Napster is opening its vault of over 2 million major and independent-label tunes to users, free, in exchange for registering with the site.

The catch: users can listen for free to any one ditty only 5 times. After that, they’ll have to pay 99 cents to listen to the song as many times as they’d like, or sign up for one of two ad-free subscription offers. “We believe this is the beginning of a that will evolve into a music ‘community site’…,” suggested research firm PiperJaffray in a statement released yesterday, adding the new service had launched two months ahead of their expectation. “ can create a destination site for music fans and, at the same time, lower subscription acquisition costs by earning ad revenue on the site.”

“We have an education hurdle with the subscription service,” explained Napster COO Laura Goldberg, noting the firm has 550,000 subscribers. The goal is to entice users of the free offering to pay either $9.95 per month for an all-access pass to CD-quality song downloads and streams, or $14.95 for the added ability to transfer the songs to an MP3 player. Not surprising, songs downloaded through Napster can’t be played on Apple iPod devices. Users will need to download Napster’s software to buy tracks or subscribe.

Although Napster’s primary male-heavy user base is comprised of tech-savvy 18-34 year-olds, Goldberg notes, “Part of our going on the Web and putting out the ad supported model is really to broaden our market for us.”

The new initiative is in line with Napster’s 2003 relaunch objective to “focus on how to most closely emulate the original Napster experience in the legal environment,” said Napster Chairman and CEO Chris Gorog during a keynote speech yesterday at the MUSEXPO event in Los Angeles. Gorog said Napster pays artists and record labels a portion of Napster subscription and ad revenues. The company will promote its free service through a campaign that launched yesterday featuring Web site takeover ads, search marketing components and print ads in alternative weekly papers around the country, according to Goldberg.

The new NapsterLinks feature may help facilitate the extension of the Napster brand. The feature generates links to copy and paste into emails or instant messages, hyperlink code for HTML pages and wikis. These links launch Napster’s music player to stream each song. In addition, Napster allows users with Web sites to join its affiliate network through ValueClick’s Commission Junction, which pays 5 percent of revenue on track and album sales generated by song links or network ads on those sites.

The company expects advertisers to place customized Napster-enabled song lists on their sites. “Advertisers have been very excited about putting a play list on their own sites,” said Goldberg, adding that the advertiser playlists would link back to Napster where the player would be branded by the advertiser. At present, Napster offers about 150 pre-programmed playlists, two of which are sponsored by Nestle candy bar brands.

Currently, advertisers including Guitar Center, Samsung, Activision, Touchstone Pictures, and the U.S. Navy run display ads within the Napster player window as well as site banners. In the next few days, the company will begin serving video ads before every third free streaming song. Advertisers can also sponsor NapsterLive, a series of live studio sessions Napster produces throughout the week. According to Goldberg, ads on the site often are targeted by music genre.

“We think this is going to be a really good place to bring in more prominently,” commented Goldberg.

Another new site offering planned to launch in the next few weeks, the Narchive, has nothing to do with undercover cops; instead, it’s a compilation of artist biographies, discographies, photos, reviews, gossip, and content submitted by fans. “It will be a great way of capturing all the lore of artists, the oral history that will be forgotten [otherwise],” Goldberg suggested.

The new offerings could help Napster compete with services from Yahoo, Rhapsody and Apple. Yahoo Music lets users customize ad-supported streaming radio and video stations for free, or to pay 79 cents and a monthly fee of $4.99 to download songs. Rhapsody users can listen to ad-free radio and 25 full-length songs for free each month, or get unlimited access to customized radio and discounted song downloads for $9.99 per month. Both services offer fewer songs than Napster or Apple’s a la carte iTunes service, which offers over 2 million songs for 99 cents each.

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