Rhapsody’s Napster expands across Europe and plots ‘laddered’ pricing strategy


irwinNine years since it launched as a legal digital music service in the UK and Germany, Napster has gone live in 14 more European countries.

It is also planning to introduce ‘laddered’ pricing to better attract broader audience segments, rather than rely solely on the £9.99 / €9.99 / $9.99 monthly cost that has become an industry standard for streaming subscriptions.

As a legal service, Napster has been through a series of owners: Roxio, then Best Buy, and since an acquisition in 2011, Rhapsody. However, the new European expansion will NOT be accompanied by a new name: Napster will remain the brand in Europe, while Rhapsody will remain its parent company’s consumer-facing service in the US.

Speaking to Music Ally ahead of the launches, Rhapsody International president Jon Irwin said, “Right now, it’s Rhapsody in the US and Napster everywhere outside of the US. That is the way we will likely continue.” He added that should the service expand into other regions, such as Asia, it would almost certainly be under the Napster name.

Irwin stressed that expansion in and of itself is not enough, and that services have to be tailored to the specifics of each country they move into.

“The ability to internationalise the platform, add additional languages, add additional currencies – that’s your table space,” he says. “You have to have that, but that doesn’t get you there. You have to be able to localise the service in terms of the content and the relevance of the music – and of the service itself.”

Why expand under the Napster name and not the Rhapsody name? Irwin says that the company’s own research found that Napster still has high consumer recognition. “Surprisingly with all the brand investment that was put into the Rhapsody brand in the US, the Napster brand awareness – when you do studies there – remained just as strong,” he said.

However, it’s important to note that there are two Napsters as far as the public is concerned: the unlicensed version that launched in 1999 and the fully licensed one that followed in 2003 after Roxio acquired it. Surely more of the public knows the former more than the latter?

“You take the awareness of the name and the iconic brand with the cat… You cannot turn it on and expect it to take on a life of its own – whether that’s a second life or a third life as a cat,” responded Irwin.

So, to carry on with the cat analogy, does that mean you only have nine lives to play with? “That’s plenty for me!” he retorts. “I’ll be long gone before we use all those up.”

napsterCompetition from strong local players

The 14 new markets Napster has gone live in are: Austria, Belgium, Denmark, Finland, France, Ireland, Italy, Luxembourg, Norway, Portugal, Spain, Sweden, Switzerland and the Netherlands.

The expansion of Napster into Scandinavia is, perhaps more than anywhere else in Europe, going to be the most challenging given the fact that local players like Spotify and WiMP are well established in their home markets.

There may have been sharp growth in total recorded music revenues last year in both Sweden and Norway that were driven by digital, but the streaming incumbents have a stranglehold on these markets that will make any move by a new entrant fraught with risk.

“You come in and you lead with marketing,” says Irwin of the challenges ahead. “You can’t go into Norway and Sweden and have all the WiMP and Spotify customers jump over to you. Not going to happen. The issue is you go in and you pick it market by market and you support it with marketing and establishing partnerships.”

According to the latest IFPI figures, there were 20m subscribers globally on streaming services in 2012. Spotify has around 6m of them, Deezer claims 4m (although it is not clear how many of those bundled with carrier deals are actually zombie accounts) and Rhapsody has around 1m.

If such services are to be profitable they have to hit scale and they are all a long way off that currently. Even Pandora, which claims 70.1m regular users in the US, is haemorrhaging money.

“Somebody made a lot of money!” roars Irwin, referring to Pandora’s IPO in 2011 and subsequent sale of stock. “Joe Kennedy [Pandora’s exiting president and CEO] made some money!”

The fact remains that it is incredibly hard to make the numbers add up here. “It depends on the business model and how it is a sustainable business model. Spotify can turn off its free music and it would be profitable for a period of time – until they lose their funnel, they lose the ability to leverage this for advertising dollars and their paid base declines,” counters Irwin.

“That is not sustainable. Napster has been around for more than eight years and Rhapsody has been around for more than 12 years. We are not a flash in the pan claiming to do this, that and the other and then our investors lose interest and you fall off the map.”

napster-ipadLaddered pricing for mainstream growth

How, then, will Rhapsody/Napster make its play into the mainstream where the scale lies? A dramatic revision of its pricing structure, claims the company, which could push it into a similar proposition to UK-only service, although perhaps not with an entry price point as low as £1 a month for capped usage.

“There is a very large market, in the US and globally, of people that will pay $9.99 a month for music but it’s not 100% or even 50% of the total population of the world,” Irwin cautions.

“There is iTunes so you can buy an album or a track for 99 cents. Even though you can [on a streaming service] get access to 20m tracks, there’s still a $9 difference. There is room for how you position people. There are those who want more than just radio or those who want radio without ads but want more functionality.”

He continues: “Is there room for a $2.99, a $3.99 and a $4.99 product that suits the needs of more people – assuming it’s easy and is a rocking user experience – that gives them what they need but is short of the full on-demand? That is what we are looking into and testing right now to find those entry points.”

So, is Rhapsody/Napster about to unveil such tiered pricing? “The word we like to use is ‘laddering’. There is going to be distribution of pricing tiers that we ladder people up as a way to create what will be a very profitable business,” says Irwin.

“It could be capped on number of listens, it could be capped on functionality, it could be capped on availability on devices. The potential to innovate on those product models and laddering models is almost infinite.”

So, going beyond the hypothetical, when will this new pricing structure (whatever it ends up being) kick in? “In the coming months,” is all Irwin will say. For now.

Windowing and exclusives

Irwin is, predictably, highly critical of acts holding back big albums from streaming services and also of the (relatively rare, but possibly to expand) move to offer exclusives to one service over the competition.

“We as an industry need to come to the table with a solution that shows them [acts] that is not the right way to do it,” says Irwin when asked about atists like Coldplay keeping their latest album off streaming services for several months.

“Don’t force your fans – who are paying for a service – to go out and pay $14.99 for an album you are releasing because you want to extract money from that piece. That’s just wrong for the fan.”

As for exclusives, we have them already in the download world (with The Beatles and AC/DC only available on iTunes and no other download or digital platform) and even Spotify did it last year with Metallica. Irwin is not a fan of this strategy (and highly cynical about the existing examples).

“That was more about Lars [Ulrich] and Sean [Parker] hugging it out on stage,” he says, referring to when Parker was at the original Napster and was sued by Metallica. “That was a show. That’s all that was. Did Spoitfy gain millions of users because they did that? No. Did they piss off a bunch of Metallica fans that are Rhapsody subscribers? Yes. Is it good for the artists? No. Is it good for the industry? No.”

As services fight tooth and nail for customers, could chequebooks come out to try and buy the world’s biggest acts on an exclusive basis?

“Think of it in the extreme. You want to get into an arms race? I have investors that have a ton of money. I can go and get The Beatles, Eagles and Garth Brooks,” proposes Irwin.

“Spotify will take Sean Parker’s money and go and lock up AC/DC and we’ll have an arms race where half the artists are on one service and half will be on another – and at the end of the day the industry will lose. It’s not the right thing to do for the industry. Write a cheque for an exclusive? Not going to be my game.”

He does accept that there is still a role for some exclusive content like live tracks and unique performances, but says that should not apply to their main studio album releases.

“That may be something that is pretty cool to do as a special feature,” he says. “But to tell an artist that their fans all have to be on Rhapsody? I’m not that arrogant.”

Written by: Eamonn Forde