Napster needs money to survive in the online music market because it is totally reliant on subscriptions for profitability, unlike Apple, which uses its download service to boost sales of the iPod.
This understanding makes the significance of Roxio's decision to sell of its CD-burning software business to Sonic Solutions clear. The company stands to gain a cash base of $100 million from the sale, and concentrating all its efforts on the Napster download business is wise because that section of the company has the resources to help survive the crowded online music space, reports Associated Press.
Roxio chief executive and chairman Chris Gorog told AP: "One of the most important questions for our investors is, 'Does Napster have the staying power to stay and thrive?' Having the cash answers that question. It will be more than enough to cover Napster until it becomes profitable, and we're on a clear path to do that."
Gartner G2 analyst Mike McGuire thinks Napster has its work cut out convincing customers to pay on a monthly basis for unlimited access to a catalogue of songs. He said: "Napster must deliver compelling marketing messages to educate consumers about the value of a subscription rather than a download model. The consumer has to see that it's a better way, not just a different way, to get their music."
But Gorog believes the subscription method is superior to the a la carte method favoured by Apple. He explained: "The simple download model is not that provocatively different than how people consume CDs today, whereas the subscription service is being able to be immersed in a world's catalogue of music. That's a big 'wow' factor for consumers, something they haven't experienced before."
Jupiter Research analyst David Card said: "Sales from both subscriptions and downloads are expected to soar during the next five years, and of the $1.7 billion projected for 2009, more than half will be from subscriptions. This year, subscriptions are only about 40 percent of the projected $271 million in online music sales."