Faced with competition from the growing ranks of free on-demand music streaming services and upcoming all you can eat services such as Nokia’s Comes With Music, Napster has wisely changed the value proposition of its core offering of unlimited music streaming to a browser. Napster has dropped the price from $12.95 a month to $5 and now allows you to keep 5 songs as MP3 downloads at the end of the month. If you download all your allotted 5 songs each month then the unlimited streaming is essentially free. Needless to say, that for a consumer this a very compelling offer. Median annual spending on music in the
U.S. is $80. So at $60 annually, this fits nicely into an average consumer’s music budget.
Following are the likely implications for the digital music market.
First, this allows Napster to compete more effectively with Apple (and the ease of iTunes integration shows they’re going after iPod owners). Traditionally, subscription services have appealed mostly to music aficionados. This price drop and focus on downloads will make Napster also attractive to an average music buyer and thus help them better serve Best Buys’ customer base. The monthly payment card (i.e. pay as you go) is also an important move as it lessens the barrier to entry for a monthly on going commitment
Secondly, it puts pressure on its rivals Rhapsody and Zune Pass to lower their prices. To their credit, Zune Pass was the first to introduce the offer of keeping some MP3s at the end of the month as part of the subscription service last year. But their offer is still mostly about unlimited streaming.
Most importantly, Napster’s subscription offer has shifted the emphasis of subscription services from renting to ownership. The point of unlimited streaming in their offer is to aid music discovery to ultimately enable purchase. Our report on online music stores and services noted that consumers are looking for ownership at the end of the monthly subscription commitment. In fact it the feature of subscription services that digital music buyers value most. Subscription services can still play the important role of being one-stop shops for consumers to listen to the music in an add free environment, discover new music that matches their taste, link up with others that have similar tastes and add to their permanent music collection, all at a price that fits their budget. Who knows they may even end up spending more than $5 in a given month.