Thursday, June 17, 2004
Napster Giving Away Free Hardware With Subscription
Posted by Jason Dunn in "NEWS" @ 10:30 AM
"Napster, which was transformed into a legal service after turning the music industry on its ear with an unauthorized song-swapping platform, is now giving away MP3 devices to anyone who subscribes for a full year. On its Web site, Napster said it would give consumers a Rio Chiba Sport portable music device, valued at about $130, if they sign up for the subscription, which is valued at $119.40. The device features 128MB of storage capacity and includes a stopwatch, sports headphones and an armband."
We knew this would happen eventually, but personally I wasn't expecting it until the buying season this winter. The premise is pretty simple: the real money to be made is in monthly subscriptions, and if you need to give someone a free MP3 player to get them to sign up, you'll recoup your costs on that player within the first few months. The player they're giving away with the year-long subscription is the Rio Chiba, a 128 MB player with an SD slot for expansion. Sure, it's no Dell DJ, but for most people it would be suitable (although you can't cram much music into 128 MB). Want a hard drive-based player? For $80 you can get a Rio Nitrus which features a 1.5 GB hard drive.
I know that everyone is basking in Apple's market success, but I firmly believe they have the market dynamics backwards: they're using iTunes as a loss-leader to sell iPods, whereas Napster is doing it the right way: taking a loss on the hardware, but making money in the long run through a music subscription. Your mobile phone carrier doesn't lose money on their monthly service plans in order to make money when you buy an expensive phone - they subsidize the cost of the phone through profitable monthly service fees. Napster won't see much success in the short term, but a year out I expect to see this model work quite well for them.
We knew this would happen eventually, but personally I wasn't expecting it until the buying season this winter. The premise is pretty simple: the real money to be made is in monthly subscriptions, and if you need to give someone a free MP3 player to get them to sign up, you'll recoup your costs on that player within the first few months. The player they're giving away with the year-long subscription is the Rio Chiba, a 128 MB player with an SD slot for expansion. Sure, it's no Dell DJ, but for most people it would be suitable (although you can't cram much music into 128 MB). Want a hard drive-based player? For $80 you can get a Rio Nitrus which features a 1.5 GB hard drive.
I know that everyone is basking in Apple's market success, but I firmly believe they have the market dynamics backwards: they're using iTunes as a loss-leader to sell iPods, whereas Napster is doing it the right way: taking a loss on the hardware, but making money in the long run through a music subscription. Your mobile phone carrier doesn't lose money on their monthly service plans in order to make money when you buy an expensive phone - they subsidize the cost of the phone through profitable monthly service fees. Napster won't see much success in the short term, but a year out I expect to see this model work quite well for them.
