It's an important move for Napster. The company's business has consisted mostly of its on-demand music subscription service, available to users of most non-iPod portable media players. That leaves out a pretty big group, given Apple's market share dominance. Since MP3 files have no encoded protection, they can be freely ported everywhere (including into Apple's iTunes software). Good luck trying to get Napster To Go service working on one of Microsoft's
This isn't going to be enough to save Napster. Because the Napster brand has been dead to iPod loyalists since it went legit, it's just one more outsider looking in.
How will Napster stand out? It's unlikely to do so on price. I've pointed out how juggernauts like Amazon and Wal-Mart are already throwing their economies-of-scale weight around. Wal-Mart is selling MP3s for as little as $0.54, with most of its new releases priced at $0.94.
We're also likely years away from when music labels will even consider the smorgasbord model of unlimited MP3 streams and downloads. They have no problem with Napster and RealNetworks
Thankfully, Napster has time on its side. The company's current model isn't broken. Despite the losses, Napster has pulled off two consecutive quarters of generating positive cash flow. The company also has $1.57 per share in cash and investments on its balance sheet, which is essentially just pocket change below where the stock is trading today.
I wouldn't get too excited over Napster selling MP3s. The stock accidentally opened higher today (yes, accidentally, because only those ignorant of the competitive nature of this market would daydream of Napster nipping at the heels of the iTunes crowd), before quickly settling back into place. However, it's a sign that Napster is perpetually tweaking its model. Between hitting up college campuses and mobile phone providers, Napster isn't going down without a fight.
Lucky Napster -- it has enough greenbacks to duke it out for a long time before it has to get it right.
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Longtime Fool contributor Rick Munarriz isn't a subscriber to any digital music service. He does not own shares in any of the companies in this story. He is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.