Objective: Viability of Napster as a revenue generating company.
Case in brief:
Napster is a brainchild of Shawn fanning, launched on June 1 ,1999 as a peer-
to-peer music downloading program for college students. Napster became a one
of the most popular sites on the internet, claiming some 15 million users in little
more than a year. From the beginning, Napster facing so many problems from
the RIAA and music industry players. Napster violated the copyrights by
allowing users to swap the music recordings for free. However, on March 5,
2001 Napster was ordered by the U.S. court to stop trading copyrighted
material. The following Year Napster filed for bankruptcy and was bought out
by Roxio Inc.
Key success factors:
The main point in the case is the Principle of copyright protection will enable
the Napster to transform itself from a freeloader’s paradise to a revenue
generating business in the face of competition. Before considering the viability
of Napster as a revenue generating company, analysis of key drivers of success
is required. Napster is the first success story of distributed computing which is
using unused capacity of the millions of computers on the Internet be an
efficient source of processing power. Napster, with its central servers, is not the
purest form of distributed computing, but is an important step in that direction.
The development of MP3 format and portable MP3 players has played a major
role in success of Napster.
Situation Analysis:
If the Napster providing a service of copyrighted materials, it has to charge for
these services. In this case, copyrighted music is tightly held by the recording
industry and the cost to acquire those assets are extremely high. Given that
copyrighted music is tightly held and the limited nature of Napster’s financial
resources, Napster can only hope to acquire these assets through alliances.
Moreover, an alliance will not be useful unless a minimum number of record
companies commit to this alliance.
Strategic alternatives:
Despite the reluctance to pay for online content, have to create a awareness
that content cannot remain free forever, driven by awareness of financial
problems that Internet companies are having as well as by recognizing that
content creators must receive compensation for their work. The key to any
subscription-based model is to understand the features that the consumer values
(demand), and to offer those features with level of exclusivity (scarcity). To
succeed in the dynamic music market, Napster must offer a tiered set of
subscriptions with different levels of payment and commitment. Service options
could be in a following packages.
► Pay per download: Small cost to downloading a particular song. Offers
all kinds of control and flexibility to user. Would require registration with
site. Micropayments might be useful here.
► Unlimited access to specific Napster defined libraries: This could mean
access to the popular content or even artist based access.
► Unlimited access to all content based on limited time commitment:
► Unlimited commitment: this could means commitment for a minimum of
1 year.
The sustainability of a subscription-based service is possible only if Napster can
align itself with all the major record labels to have their content available on
their site. The other key variable is the need to develop a more secure format
against the piracy. This can be achieved only with a concerted effort among the
record labels, distribution outlets such as Napster and software.
Creating an appealing pay service will be a steep hurdle, particularly with the
fact that the users have got accustomed to the free service and the presence of
competitors who can provide the same service free. In addition, the sentiment
that they have been charged excessively by the music industry is prevalent
among the consumers and needs effort from all sides to correct this problem.
Napster has sown the seeds of a digital revolution where the consumers have
become tired of the traditional distribution model and have started expecting
more.But it’s hard to deny the compelling advantages provided by these new
technologies. As technology advances across the board and online digital
delivery slowly replaces CD sales, these issues will become more and more
pressing for the major labels. Napster needs to make recording companies
realize a vision of a digital future. Recognizing and planning for future market
needs now will allow these major labels - or anyone else who responds well to
these market needs - to survive as the future of the music industry.
