Napster working to catch up

The music-sharing site Napster, closed down by the courts in 2000, is back - and this time it's legit. But have rivals such as Apple stolen its thunder? CHARLES ARTHUR talks to the company's chief executive.

LONDON - At a conference in London last week, Chris Gorog casually announced that Napster, of which he's chief executive, would have a legal download service in the UK "by the end of the summer".

It will be UK-only, because the deals with the record labels have to be worked out in each country individually; the UK is first because it is Europe's biggest music market.

But Napster doesn't yet have any deals signed in the UK with any of the five major labels.

Given that its most significant American rival, Apple, has been working for at least a year to tie up similar deals - and is understood to be working on a "big bang" pan-European launch - Napster seems to be first in the publicity stakes, but liable to be second into the business.

What's more, there are already quite a few companies legally selling music online in the UK, including Coca-Cola and Wippit (which has signed a deal to offer EMI's whole catalogue on its peer-to-peer service).

And there are rumours that Sony is holding off signing any deals with European online stores before it gets its own online offering sorted out.

Gorog won't comment, but he is "optimistic" of having all five major labels signed up; he thinks "it would be a very difficult decision to launch without all five".

All in all, Napster appears to have a lot of ground to make up. In fact, the only thing that could be seen as working in its favour is its famous name.

In the past, Napster didn't have any deals with the record labels. It was famous, at least among internet users in the late 1990s, as the first (and to some people greatest) of the peer to peer file-sharing networks.

It had tens, perhaps hundreds, of millions of users, and part of the attraction - as it upended the business model of the music industry - was that on its good days you could find any track you could imagine, and hundreds more that you hadn't thought of.

The original Napster, however, was closed down by the courts after being sued by the record companies.

Its intellectual property was bought by BMG, but the record company couldn't make it work, so Napster went bankrupt and the name was bought by Roxio, maker of the Toast CD-writing software.

(Gorog, a former executive with Disney and then Universal, is now also the chief executive of Roxio.)

In October, after a period of testing with 45,000 beta users, Napster relaunched as a legal download site with a library of 500,000 songs - "the world's largest", Gorog says.

It offers subscriptions for US$9.95 per month, or simple downloads at 99c per track or US$9.95 per album.

In the United States, the only country where it operates, it's in second place, a long way behind Apple's estimated 75 per cent of the business.

This dominance by a company that has only a tiny slice of the computer market is down to its users: they're just too eager to adopt new things.

"We think [Apple users] could be as much as 25 per cent of the online music business in the US," says Gorog.

That's remarkable, given that there can't be more than a few million machines able to use the iTunes Music Store.

"In part, it's because Apple were first to market, entered the market seven months before Napster, with a device [the iPod] that has trapped their audience so that there's no place for them to go other than iTunes."

Why should one bunch of computer users be so much more eager to take up this technology than another?

"Macintosh users are historically early adopters of technology, and the online music business is still in the stage of early adoption," Gorog says.

"The entire industry in the US is projected to be US$300m; happily that's projected to grow to US$4.5bn by 2008."

Yet even at this early stage of the race, Napster has a number of disadvantages compared with Apple.

It's a lot smaller, and has less cash: Roxio has just US$60m in the bank, compared with the US$5bn or so in Apple's.

It can't do the big advertising splashes. Its US launch was accompanied by small teaser cartoons using its logo.

It can't rely on a dedicated audience, as Apple can with its computer buyers. Users of the original Napster have migrated to new file-sharing networks, or just grown up and bought the CDs.

And it can't generate extra profits on selling associated hardware, as Apple can from the iPod.

Ah, the iPod - which, like Apple's iTunes software, does not play files encoded in Windows Media Audio (WMA) format, used by virtually every online music store, including Napster.

Would Gorog like the iPod to support WMA?

"We think it would be great!" he says, which almost certainly means Apple won't.

"We believe that Apple is very vulnerable for the reason that their service is only available to people with an iPod," he says.

(If you want to put music from the iTunes Music Store on to a portable player, you need an iPod; but you can also burn it to a CD.)

"If you buy an iPod, you're trapped in the iTunes store. That's like being told that you can only go into HMV's store, and never Virgin."

The weakness in this argument is that if both HMV and Virgin sell the same repertoire, who cares which store you're locked in? What matters now is visibility.

Napster lost a big opportunity late last year: HP had been about to sign a deal that would put Napster on every HP computer. That didn't happen - and instead in January HP signed with Apple to pre-install the iTunes software on its machines, and resell the iPod.

Gorog seems unhappy when asked about the implications of this.

"I don't know what you're referring to," he says.

"We never comment on deals that were in negotiation; that were or were not in negotiation."

Sounds like a sore point.

"We have a relationship today with HP," he says.

"We bundle our [Roxio] software on their PCs with our CD recording software, so I'm not going to start to comment on how HP do their business."

What about the Napster business model? Subscriptions are largely untried in music, or where they have been (as with Pressplay, which Roxio also bought), they've failed.

One sticking point might be that if you download a subscription track, then stop paying the subscription, the file will stop playing.

Napster may turn that around: Gorog says he's added "tens of thousands" of subscribers and that they are the most regular buyers of tracks.

"This is what the true music fan is looking for - the ability to have instant access to the world's largest music library without having to stop and ask yourself, 'Do I want to pay 99c simply to play this song, do I want to pay US$9.95 to listen to this album?'

"The game is in eliminating that decision-making, offering for a very fair price unlimited access to all this music, which we believe true music fans are going to be very excited with."

The subscribers buy more music, per capita, than non-subscribers. "Try before you buy" seems to work.

At present, however, you can't take those tracks with you on your not-iPod.

Microsoft (which provides the "rights management" software for Napster) is working on a technology called Janus that will allow such subscriber-acquired tracks to be loaded on to digital players; it should be available by the middle of next year.

Another potential source of discontent is pricing.

Napster - in its original form - demonstrated that online music was the ultimate fungible good, indistinguishable at the receiving and sending ends.

So might they not find it irksome to see a track by, say, OutKast selling for 99c in the US but 99p in Britain - a 40 per cent mark-up, in effect, for the same file? Gorog doesn't want to tangle with this one.

Prices haven't been decided or set, he says. But it was annoyances like that which helped the original Napster to ride a wave of discontent with the music business.

Apple hasn't said what its prices will be either, and perhaps it's struggling with this issue too.

It's increasingly clear that trying to pick winners at this stage is like trying to decide the winner of the marathon after 100 metres.

Legalised online music has barely got to its feet; and the file-sharing networks still outnumber their legal rivals by orders of magnitude, both in terms of users and numbers of files.

"We're in the nascent stages of this industry," Gorog says.

"To suggest that anybody has the lead...it's too early to declare a winner."

- INDEPENDENT