Radio Free Napster

Like a blast from the past, Napster (Nasdaq: NAPS) is free again. Granted, today's launch of a free Web-based music listening service can't compare to the renegade peer-to-peer song-swapping offering that Napster once offered. In this new, legal incarnation, registered users are allowed to stream a complete song at least five times before they have to fork over cash for a digital download.

I gave the new service a spin this morning. As promised, the new ad-supported service worked just fine, with a brief 14-second ad separating my ears from We Are Scientists' "It's a Hit." There was no program to download just to listen, though I'd have to get Napster's software to buy a download or become a member of Napster's unlimited service.

Napster is taking its freebies seriously. It's also allowing folks to link to free Napster music within email, IMs, websites, blogs, or social networking sites like MySpace. Unfortunately, for now, those links don't use the Web-based service; they only open within Napster's player program. It's not the same instant gratification offered by sites like YouTube or CNET's (Nasdaq: CNET) Webshots.com, where users can embed the actual content into their pages.

Napster will also be launching N-Archive, which aspires to be the music industry's response to Wikipedia. The company hopes N-Archive users will write, edit, and add to entires in its online music encyclopedia.

All in all, it's a bold but necessary move by Napster. The company's got a fine financial position, but so do its online-music rivals, RealNetworks (Nasdaq: RNWK), Apple (Nasdaq: AAPL), and Yahoo! (Nasdaq: YHOO). Fat promotional budgets aren't enough to make a service stand out on music lovers' online radar.

Napster has been a mostly forgotten entity, trading for little more than the cash on its balance sheet. I like its latest moves, though. It hasn't been easy to rebrand a service that most associated with music piracy as a legal offering, so once again, Napster is appealing to the thrifty.

This could blow up in Napster's face, of course. Paying subscribers who weren't taking advantage of the portability of its flagship service may be just fine with treating Napster.com as a free digital jukebox. Most of those who come for the free tunes are unlikely to ever open up their wallets, and it remains to be seen whether an ad-supported model can lucratively offset the costs of streaming fat music files.

This battle will be decided in a few months, when the growing popularity that this free-music offering will give Napster allows the company to pitch to a larger audience. Just like its revolutionary deal with XM Satellite Radio (Nasdaq: XMSR) this quarter, allowing satellite radio listeners to purchase digital downloads of songs via new XM receivers, this effort shows that Napster's got big dreams and the soundtrack to score them.

Now those dreams are in the public's fickle, penny-pinching hands.

Digital music is a high growth industry that is often explored as part of the Rule Breakers newsletter service. In fact, XM and CNET were singled out as active recommendations last year. Find out which one with a 30-day free trial.

Longtime Fool contributor Rick Munarriz loves his music. He does not own shares in any of the companies mentioned in this story. Rick is a member of the Rule Breakers analytical team, seeking out tomorrow's great growth stocks a day early.