Rollin' on a river. Listen to the story now. -- "Proud Mary," Ike and Tina Turner
In the world of downloaded music, Napster
Napster has been high-profile since it ran two ads during this year's Super Bowl. The subscriber base -- business word-fog for who's buying the music downloads -- has blasted from an end-of-year 270,000 subscribers to 410,000 now, a 53% increase -- and 56,000 are university students, a coveted customer base among marketers.
Napster's CEO says he believes Napster is the fastest-growing music subscription service. It needs to be, because there's a lot of competing going on out there. From Apple
Worthy of consideration, Apple owns exclusive rights to music downloads for its stalwart iPod: None of the other downloading services interfaces with it. Napster's service does not work with iPods, restricting Napster's access to a valuable pocket of the market. Furthermore, it's unlikely that the two will create an alliance anytime soon, given that Apple holds a healthy and continuous revenue stream in downloaded songs.
For the MBAs thinking there's a familiar ring to "subscriber base," look no further than satellite radio -- yes, the forever Foolishly debated XM
Wall Street likes today's news and sent Napster's stock up 15% this morning. Hey, what's not to like? Napster has net cash, or total debt minus cash, of $124 million. Isn't that enough greenbacks to choke back competition? Well, let's let the analysts have the final say. They see the company losing $1.72 per share for the fiscal year ended in March and then a larger $1.79 loss in 2006.
For the sake of argument, we also might do well to consider the costs of trading off -- consumers presumably like music best when it's cheapest. Napster has cleverly inserted something of a red herring into its membership clause: Its subscribers are able to listen to songs downloaded from Napster only during their membership. That creates an incentive to stay on board.
The fundamental question -- as costs to downloading decline and competitors emerge -- is: Will Napster be able to continue its growth?