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Roxio Plans Legit Napster Comeback

Author: Ryan Naraine
Thursday, February 27, 2003
Napster, the rogue file-sharing service that lost the battle with the recording industry, will reincarnate as a paid subscription service later this year.

Santa Clara, Calif.-based Roxio (Quote, Company Info) plans to add Napster to the crowded marketplace for online download music but, instead of being a peer-to-peer application, it will employ client-server technologies, spokeswoman Kathryn Kelly told

Roxio, which shelled out $5.3 million to pick at Napster's bones in bankruptcy court, expects to have the service up and running within the year with the full approval from the major music labels.

Kelly declined details on Roxio's plans except to say the relaunched Napster will "probably offer both single downloads and subscription plans." Shawn Fanning, who gained notoriety for creating the Napster phenomenon in the late 1990s, has been hired as a consultant to help define the user experience, Kelly added.

Roxio CEO Chris Gorog, who is expected to formally announce the Napster relaunch on Monday, has been locked in negotiations with the five major music labels -- Vivendi's Universal Music Group, Sony Music, Warner Music Group, Bertelsmann AG and EMI Group -- to secure licenses for the service.

It is not the first time Napster has aligned itself with a legitimate paid download service. In June 2001, Napster joined Seattle-based MusicNet as an official affiliate.

Phil Leigh, an analyst at Raymond James & Associates, believes Roxio will benefit from Napster's easily recognizable brand. "Napster has the potential to become a major brand again. If you look at the others -- Rhapsody, pressplay or MusicNet -- Napster has far superior brand recognition," Leigh said.

Jupiter Research analyst Lee Black thinks Roxio's timing is perfect. "There's a lot of energy around music subscription services. With the assets they acquired, Roxio now has a cheap distribution platform and the Napster brand still have some value," Black said.

But, doubts remain about the viability of another paid download service in what is now a crowded marketplace.'s Rhapsody, MusicNet, Pressplay have all gotten a headstart in the race to hawk digital music files online and, even those companies have found it tough to sign up enough subscribers to justify the set-up costs.

Black told the biggest impediment to launching a successful premium service is the cost to acquire the licenses from the music labels. "The business model gets destroyed by trying to buy the content. Only five players -- the labels -- control the pricing and they are able to set the prices very high," he explained.

On average, the labels ask for about 50 cents on a download that's sold for 99 cents and, when overheads and bandwidth costs are calculated, the music services end up making next to nothing. "The price they have to pay to get the licenses from the major labels is steep. It would be interesting to know if the music services have to give up equity or put up a retainer fee to acquire these rights," Black said.

Roxio, which makes the bulk of its revenue from the sale of its flagship CD and DVD burning software, is entering the marketplace at a time when rivals are in the midst of rejiggering their pricing policies to lure subscribers.