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UPDATE: Napster Hits A Winner

Napster LogoI was unimpressed with all the mainstream press reports I found on the Napster/Ericsson deal that was announced today…most of them were fairly ambiguous and left some questions in my mind…So I lined up an interview with Napster President Brad Duea. He answered all my questions, I hope you don’t have some I haven’t thought of…if you have, let us know and we might be able to do something…

The initial impression I had of the deal was confirmed by my talk: This is the best move of an online music service onto mobile phones that I’ve heard of, and is better than the iTunes/Motorola effort. There are two main advantages this deal has over iTunes:

First, it is not restricted to a specific handset. The service will be available on any handset which can handle it rather than just Sony Ericsson phones…in fact it would probably include the iPhone as well. This is of obvious benefit to consumers, but also carriers who have a wider range of “music phone” options.

The other advantage is the inclusion of the operator in all the revenue streams (well, pretty much all). There’s an a la carte option for buying tracks over mobiles, which the carrier gets a slice of the revenues for (and which includes ‘dual delivery’, a link to the same track sent simultaneously to your computer), and also the Napster To Go service which can be ‘sideloaded’ to handsets via USB. That means that all the songs you download (which is unlimited) can be switched to your phone, although there are also plans to offer the service over the air. The sideloading service has been available for a while, but now carriers which drive customers to the Napster To Go service get a piece of that action. This is vitally important since it circumvents the oft-speculated carrier resistance to off-portal music services, and even offers a possible revenue stream for carriers for their customers transfering files from their PC.

The main restriction will be the handsets themselves — although a vast number of handsets can handle the a la carte service (which will work with any “label approved DRM”) only handsets which have Microsoft Windows Media 10 will be compatible with the Napster To Go service.

Napster and Ericsson have bent over backwards to make things easy for the carriers, offering the application as a preloaded option for handsets or a portal offering, and allowing the carriers to choose select elements of the application and leave others. The pricing for the service hasn’t been decided yet, and will depend on the deals with the carriers.

More Benefits For Napster
There’s some obvious benefits for Napster in partnering with a telco hardware company like Ericsson (remember, the deal is with Ericsson, vendor of back-end telco systems, not Sony Ericsson, vendor of mobile handsets). First, Ericsson is already well known to carriers and in many cases is already integrated into their back-end systems, including billing. Plus, Ericsson has deals with operators in 130 countries, which brings me to my next point…

Napster view this is a great opportunity for international expansion, and I tend to agree. “This will allow us to approach markets that might have a deeper mobile penetrations than PC and broadband, and allow Napster to enter those markets on the mobile platform,” said Duea. “We might be able to enter more markets faster on the mobile platform than we can on the PC platform.”

Napster already operates in the US, Canada, UK and soon Germany, this deal will especially help them move into developing markets such as Mexico and Latin America, Asia and so on. Who knows? With music priced reasonably maybe piracy will start falling…

Napster has received a lot of flack over its music service — its shares fell 27 percent when Yahoo launched its music service, although most people missed the fact that Yahoos low price was an introductory one — but this mobile music service may be the most successful in winning the backing of carriers, and hence the most successful overall.

Related stories:
Napster & Dwango Pair Up To Offer Ringtones
Another Record Year Thanks To Japanese Mobile Music
30 Million 3G Music Downloads Or Streams On 3 Global Network

2 Responses to “UPDATE: Napster Hits A Winner”

  1. James Pearce

    Joshua L. Jabs, a research analyst at Piper Jaffray & CO, sent in the following comments by email:

    I think one very important aspect of the mobile phone download vs. broadband download music debate that gets left out is consumer purchasing habits. To this point the debate has pitched broadband downloading (with side transfer to the mobile) vs. over the air downloading (via the carrier network). I truly think that the two will coexist. Over-the-air downloading will be primarily for impulse buys, in which case the consumer will be willing to pay a premium fee (a possible revenue stream for the carrier) and will save volume buys for the broadband connection. This is similar to consumer online shopping habits. If I really need some physical commodity "now" I run to the store and buy it. If I can wait a few days, I can probably pay less online and will look to do so. These two methods can comfortably coexist, with the carriers getting the ever important revenue stream.

    Obviously, I'm a firm believer in dual delivery and believe that consumers will force music delivery to go this route. Consumers aren't going to be satisfied with multiple catalogs (one mobile, one broadband), which would result in having to pay twice for the same track or synchronization.

  2. James Pearce

    Hi Philippe,

    The system will be DRM agnostic with respect to individually purchased downloads. So any handset that has label-approved DRM can buy songs from Napster.

    However, to use the subscription service (Napster To Go) the handset needs the Windows Media 10 DRM.

    I hope that helps.