Music, to go

The much-hyped Napster To Go service has launched in the UK, with a unique proposition: for a flat fee of £15 per month, you can access as much music as you want – and crucially, you’ll be able to transfer it to your portable player. According to Napster boss Chris Gorog, it will “change the music industry forever”.

He might be right, but any such change won’t be overnight. Initially, Napster To Go supports just five portable players: The Creative Zen Micro, the iRiver H10 and Portable Media Center, the Creative Zen Portable Media Center, and the Samsung YH999 Portable Media Center. You’ll note the absence of a rather well-known player whose name begins with “i”, and that won’t change any time soon: Apple’s iPod dominates the market and to date, the firm has shown zero interest in making the iPod compatible with Windows Media Player 10. Napster expects to support a further 18 devices (four media centers and 14 MP3 players) within three months, but you can be sure the iPod won’t be one of them.

I do think it’s a positive step – the more choice, the better – but I’m inclined to agree with Mark Mulligan of Jupiter Research, who writes:

Napster to Go will significantly enhance value for existing customers and will be the tipping point for many ‘wavering voters’. But it is not about to make Apple twitch nervously. Portable subscriptions will not knock Apple off its throne in the near term future, for a whole host of reasons, not least being the greater mid term receptivity towards a la carte services and the highly fragmented nature of the device market.

In many ways, Napster To Go is likely to appeal to the same sort of people who like online DVD rentals: it’s a fixed price, you can use it as much as you want, and the more you use it the more cost-effective it gets. However, a significant number of people want to own music, or at the very least transfer it to CD so they can listen to it in the car. Napster To Go won’t appeal to either group, which is why the iTunes music store (and Napster’s own a la carte service) won’t be wiped out by this any time soon.

What’s interesting to me is that Napster To Go does two things to the value of music: it makes the cost of an individual track effectively zero, while encouraging people to spend more money on music. I know those two effects sound mutually exclusive, but they aren’t. Think about it this way: spend £15 in iTunes or Napster’s normal service and you get 19 tracks; pay £14.95 for the To Go service and you can have thousands of tracks – so the cost per song is as close to zero as makes no difference. And yet, the average punter buys six CDs per year, largely from supermarkets, so their annual spend on music is less than sixty quid; twelve months of Napster To Go, on the other hand, persuades them to part with £180.

Or to put it another way, by making music cheaper, Napster To Go has found a way to make people spend more money on music.

It’s almost a revolution, but Napster could and should go further – although it’ll be a cold day in hell before the music business goes along with this suggestion. The very thing that enables Napster to offer a To Go service – the Windows Media 10 digital rights management system – is the very thing that makes the service a step in the right direction rather than a revolution that will change the music business forever. While the DRM makes it possible to transfer music to portables, it excludes the world’s most popular range of music players, and it prevents people from burning tracks to CD.

Last year, the UK and US music industries sold 542 million CD albums. Taking the average of six CDs per person per year, that’s just under 100 million people buying music; for simplicity’s sake, we’ll assume each of those CDs was ten quid. So that’s £5.42 billion in sales of albums. If Napster To Go were to charge the same, offer unrestricted MP3s and forget about DRM, it’s reasonable to assume that a significant number of those customers would go for the To Go service.

100 million people buying six CDs a year: £5.42 billion per year.

100 million people paying for Napster To Go: £18 billion per year*.

And that’s before you start the value-add, where there’s a premium version of To Go that offers higher bitrate files or uncompressed WAV files, or a premium version that gives you music videos, or fan-friendly content such as artwork or backstage interviews, or priority ticket booking, or ringtones, or… you get the idea.

Is 100 million subscription customers realistic? Probably not for a while, as I don’t think there are that many broadband customers in the US and UK just yet. However, Kazaa has been downloaded by 382 million people, which suggests that there’s a lot of potential customers out there, and the rise of Media Centers, portable MP3 players and the like will no doubt fuel demand.

As I’ve said once or twice, the average iPod owner has room for 10,000 songs but has only bought 25 tunes from iTunes – which means total revenue of twenty quid per iPod owner. If Apple could persuade just half of iPod owners to sign up for a To Go-style subscription service, sales would go through the roof – and music piracy would all but disappear.

[* the International Federation of the Phonographic Industry reports that in 2003, the global music industry was worth $32 billion, which works out as £17.7 billion. That’s not just albums but singles, videos and DVDs.]