Roxio Plans Legit Napster Comeback

Napster, the rogue file-sharing service that lost
the battle with the recording industry, will reincarnate as a paid
subscription service later this year.

Santa Clara, Calif.-based Roxio plans to add
Napster to the crowded marketplace for online download music but, instead of
being a peer-to-peer application, it will
employ client-server technologies, spokeswoman Kathryn Kelly told
internetnews.com.

Roxio, which shelled out $5.3 million to pick at Napster’s bones in bankruptcy court,
expects to have the service up and running within the year with the full
approval from the major music labels.

Kelly declined details on Roxio’s plans except to say the relaunched
Napster will “probably offer both single downloads and subscription plans.”
Shawn Fanning, who gained notoriety for creating the Napster
phenomenon in the late 1990s, has been hired as a consultant to help define
the user experience, Kelly added.

Roxio CEO Chris Gorog, who is expected to formally announce the Napster
relaunch on Monday, has been locked in negotiations with the five major
music labels — Vivendi’s Universal Music Group, Sony Music, Warner Music
Group, Bertelsmann AG and EMI Group — to secure licenses for the
service.

It is not the first time Napster has aligned itself with a legitimate paid download service. In June 2001, Napster
joined Seattle-based MusicNet as an official affiliate.

Phil Leigh, an analyst at Raymond James & Associates, believes Roxio will
benefit from Napster’s easily recognizable brand. “Napster has the
potential to become a major brand again. If you look at the others —
Rhapsody, pressplay or MusicNet — Napster has far superior brand
recognition,” Leigh said.

Jupiter Research analyst Lee Black thinks Roxio’s timing is perfect.
“There’s a lot of energy around music subscription services. With the assets
they acquired, Roxio now has a cheap distribution platform and the Napster
brand still have some value,” Black said.

But, doubts remain about the viability of another paid download service
in what is now a crowded marketplace. Listen.com’s Rhapsody, MusicNet,
Pressplay have all gotten a headstart in the race to hawk digital music
files online and, even those companies have found it tough to sign up enough
subscribers to justify the set-up costs.

Black told internetnews.com the biggest impediment to launching a
successful premium service is the cost to acquire the licenses from the
music labels. “The business model gets destroyed by trying to buy the
content. Only five players — the labels — control the pricing and they
are able to set the prices very high,” he explained.

On average, the labels ask for about 50 cents on a download that’s sold
for 99 cents and, when overheads and bandwidth costs are calculated, the
music services end up making next to nothing. “The price they have to pay
to get the licenses from the major labels is steep. It would be interesting
to know if the music services have to give up equity or put up a retainer
fee to acquire these rights,” Black said.

Roxio, which makes the bulk of its revenue from the sale of its flagship
CD and DVD burning software, is entering the marketplace at a time when
rivals are in the midst of rejiggering their pricing policies to lure
subscribers.

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