the napster - kntuwp.kntu.ac.ir/hosseini/co/napster.pdf · new napster (cont.) the environment...

THE NAPSTERUNLIMITED MUSIC , WHEREVER YOU ARE…

PRESNTERS:

ALI BAGHAEIALI MAHMOODYAR

MOHAMAD JAVFAR NEMATI

Course of Internet Marketing At KNTU by Dr. M. Hosseini

| A Presentation at K. N. Toosi University of Technology 1

COMPANY OVERVIEWCreated in 1999 by 19 year old Shawn Fanning who attendedBoston Northeastern University. The program was writtento help better find music downloads online.

The system was known as P2P since it enabled music tracksstored on other Internet user’s hard disks in MP3 format tobe searched and shared with other Internet users.

Legal issues led to several major recording companies losingtheir revenues in music sales and backed by RIAA(Recording Industry Association of America) launching alawsuit to file sharing companies.


COMPANY OVERVIEW (CONT.)

As a result of these legal actions an injunction was issued on March 5, 2001 orderingNapster to cease trading of copyrighted material. At last Napster’s assets werepurchased by German media company Bertelsmann AG for $8 million as companyfiled for bankruptcy.

Later company was purchased by Roxio, before the bankruptcy Napster reachedabout 27 million users.

Since this time, other P2P services such as Gnutella, Grokster and Kazaa haveprospered which have been more difficult for the copyright owners to pursue incourt.

| A Presentation at K. N. Toosi University of Technology

U.S. ALBUM SALESINCLUDING DIGITAL SINGLES

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Predicted Sales (based on historic growth)

Napster Begins

Actual Sales

Alb

um s

old

per p

erso

n

Source: hollywoodreporter.com/thr-esq/how-recording-industry-intends-win-175739


NEW NAPSTER Napster reincarnated in 2005 offering legal music download service.

Napster has around 410,000 subscribers in the United States, Canada and theUnited Kingdom.

New Napster offers a free trial of their fee-based music downloading service.This software also offers high streams and access to tracks.

Napster premium permits listening to and downloading about 1,500,000songs for about $10-$20 per month.


NEW NAPSTER (CONT.) The environment changed with legal music downloading propelled through increasing

adoption of the followings:

broadband The success of Apple iTunes and its portable music player The iPod

After bankruptcy Napster lost its customer base and in 2005 it barely reached half a millioncustomers.

In 2005, BBC estimated that the global music market is worth $33 billion a year, whileonline music market is accounted for around 5%.


THE EMPLOYEES

Operation, financemanagement

EngineeringProduct Dev.

Customer careservices

SalesMarketing


THE CUSTOMERSAN STATISTIC APPROACH

750,000 Users

55 million downloads(Stream or Full Download)

%80 of its subscribersare over the age of 25

Half of themhave kids


COMPETITION Online music services: Apple Computer’s iTunes, Amazon, RealNetworks, Inc.’s

Rhapsody, Yahoo! Unlimited, Sony Connect, AOL Music, MusicNet and MusicNow.

Napster believes that the main competitive factors affecting their market includeprogramming and features, price and performance, quality of customer support,compatibility with popular hardware devices and brand.


COMPETITION (CONT.)

Apple’s iTunes has a market share of %88 for legal US downloads. Outside the US,there are iTunes stores in 21 countries all over the world and it’s #1 in all of them.

iTunes is integrated with iPod which captures about 76% of market share.(According to Apple Inc.). Company uses pay-per-download model (PPD), wherecustomers purchase a single or multiple tracks or even a full album for $0.99 persong, where Napster uses different model of online selling.


COMPETITION (CONT.)

Company uses the same selling model as Napster, where people pay monthly feestarting at $12.99 to gain access to million songs that can be streamed ordownloaded.

Rhapsody’s current market share consists of only close to 5%.


DIG. MEDIA SLAESSEPERATED BY THE MARKET SHARE

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Jan -Jun 07 Jan -Jun 08 Jan - Jun 09

iTunes Rhapsody Zune Napster Amazon

Oh man!!iTunes has swallowed the market share!


BEST STORESFEE-BASED DIGITAL MUSIC SERVICES OR DOWNLOAD STORES

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iTunes Amazon Napster Rhapsody MySpace Walmart Y! Music All Others

Summer 08 Summer 07 Summer 06

Source: ipsos-na.com/news/pressrelease.cfm?id=4089


COPYRIGHT LAW IN THE US Promotes progress of science and arts Protects all original works of authorship that last for the life

of the author plus 50 years

Accusation against Napster

Contributory infringement:Contributing to the direct copyright infringement of its consumer-users

Vicarious infringement:Profiting from infringing activity under its control


DEFENCE OF NAPSTER“Staple article of commerce” doctrine: provider of technology is NOT liable if technology is capable of significant non-

infringing use VCR (Video Cassette Recording) can be used both for copyright infringement and

for legal non-infringing uses

Napster Defense against “Contributory infringement”

Capable of significant non-infringing uses Introducing new artists Free authorized distribution of songs


DEFENCE OF NAPSTER (CONT.)

Napster Defense against “Vicarious Infringement”

There is liability if Napster has both:

1. Ability to supervise activity of its users2. Direct financial interest in infringing activities

However, there is no way for Napster to distinguish between legal or illegalcopying.


THE OTHER SIDE…RIAA sued Napster

• Napster’s service enables piracy of music.• Millions of users may be logged onto Napster trading millions of pirated recordings.

RIAA’s Summary of Allegations

Napster users are committing copyright infringement. Napster promotes infringement. Napster advertises the ease of finding songs through their server. Napster should be liable.


RIAA VS. NAPSTER“Napster hurt record sales.”

- Hillary Rosen,President, RIAA

RIAA claims that sales of compact discs singles fell by39% last year.And that “Napster has delayed the development of anonline music market place.”


RECORD COMPANIES FOR NAPSTER Napster is indicative of a new form of buying and selling of music:

“Even piracy, that’s hands-down a copyright infringement, can in certain instances speedup the process of legitimate market development.”

- Strauss ZelnickPresident, BMG Entertainment

new.webnoize.com believes that Napster did not hurt CD sales as claimed:“They may owe Napster a larger debt than they would care to admit. Napster showed theway for the recording industry.”

- Webnoize analyst


ARTISTS VS. NAPSTER

Simple logic: Napster helps non-RIAAartists

- Napster helps artists to market/promotetheir music without the backing of a recordstudio.- Offers a potentially better way to delivermusic to consumers. Allows fledging artiststo promote/expose their music to a largeraudience.

Advocates

• Hurts CD sales, thus hurting artists’royalties

• “Napster is theft…”• Poor CD sales also impact future

potential record deals:• Copyright issues…

Opponents


TOTAL AWARENESS(2004)IN THE DIGITAL MUSIC SERVICES OR DOWNLOAD STORES

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80

iTunes Napster Rhapsody Walmart MTV realPlayer Vh1

Unaided Awareness Aided Awareness

Source: http://www.ipsosmediact.com/download/pr.aspx?id=4287


TOTAL AWARENESS(2005)IN THE DIGITAL MUSIC SERVICES OR DOWNLOAD STORES

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10

20

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iTunes Amazon Napster Rhapsody MySpace Walmart Y! Music AOL MTV realPlayer Zune Vh1

Unaided Awareness Aided Awareness

Source: http://macdailynews.com/2008/10/10/apples_itunes_store_brand_gains_strength_continues_to_dominate_marketplace/


NAPSTER STRATEGY• Allow customers to download songs they want as they pay

subscription fee.

• The software program is called “Napster to Go”.

• “Napster Mobile”

• Makes available company’s collection of million songs, but

uses Microsoft’s copy protection technology – Janus – to

time stamp tracks.


NAPSTER STRATEGY(CONT.)

• The program would check the user’s subscription and would

not play unless consumer paid a monthly fees.

• If the customers want to burn tracks on a CD, they have to

pay additional pay-per-track amount.

• Which is lower than their biggest competitor and

market leader Apple.


FORMULATING STRATEGY

• Napster came up with a new online music service.

• It made it cheaper than its competitors.

• This new Napster and new strategy would create

brand awareness and start building the trust.


FORMULATING STRATEGY

• Despite being cheaper than Apple, it also allowed

people to access millions of songs.

• Customers could download songs they wanted, as

they store them either on their PC or portable media

device.

• Napster also fulfilled niche markets.

(CONT.)


IMPLEMENTING EFFECTIVELYAND EFFICIENTLY

• They created a new product but struggled to receive the benefit

out of it.

• Despite the increase in subscribers and revenue, Napster was

experiencing huge net losses due to their high expenses.

• From 2003 to 2005 Napster have incurred about $98 million in

after tax losses.


IMPLEMENTING EFFECTIVELYAND EFFICIENTLY(CONT.)

• The subscription model allowed access to millions of tracks as long

as subscription fee was paid, but whenever customers stopped

paying subscription all those songs were unavailable.

• After launching its new service Napster should have used market

research or surveys to see the feedback about the product and

continuously keep improving it.


COMPANY 4PS

Product Price

Promotion Place

PRODUCT

Unlimited music downloads from anywhere atanytime via its online music library.

Also mobile downloads for cellular devices.

One of the widest selections of music among allmusic download sites.

PLACE

Napster will share placement of their service throughmultiple venues:

through the “brick and mortar” Best Buy stores (which will offer point‐of‐purchase sites)

via online through Bestbuy.com and Napster.com

and through mobile internet for cellular phones.

PRICE Price is the biggest strong suit and focus in the

industry.

Access one of the largest music database in the world,pay less than $20 per month.

while subscribers of iTunes who purchase on pay‐per‐play service spend much more.

PROMOTION The biggest promotional attraction will be the try it for

free. (30 days trial)

After bad press over years, setting up a new strategyto promote in schools.

Supporting execution over several different mediaformats (specific emphasis on Web 2.0 apps.)


MARKETING STRATEGYPRIMARY MARKET:

• The current target market is 25 to 40 year olds.

• A new target market would be:

• Expanding to 18 to 40 year old demographics.

• Younger and youngers, with parental permission.

• Teens can download as much music as they wish.

• without having their parents worrying about

amounting massive charges occurred at pay-per‐play

sites.


MARKETING STRATEGYSECONDARY MARKET:

• Anyone involved in music.

• Someone that plays an instrument.

• People will have an interest in listening to music.


THE NAPSTER BUSINESS MODELTHE OLD DOT.COM BUSINESS MODEL

• Napster was created during the hot phase the Dot.Com boom.

• It was sufficient to attract users and to grow the value of a

company,

• to be able to sell off fast and to a good price.

• It might have followed applications such as ICQ.


THE NAPSTER BUSINESS MODELTHE OLD DOT.COM BUSINESS MODEL (CONT.)

• The business model of Napster probably was to grow the

numbers of users based on exponential growth of their Online

Community and to sell off.


THE NAPSTER BUSINESS MODELTHE BUSINESS MODEL AFTER THE BERTELSMANN TAKEOVER

• Napster intents to convert the user base of its online

community to regular clients.

• A membership model based on subscription:

• "Basic Membership": $2.95 to $4.95 per month

(undermined limit on file transfers)

• "Premium Membership": $5.95 to $9.95 (will offer

unlimited file transfers)


MARKETING IMPLEMENTATION• Increasing penetration of market share will be primarily

focused on targeting younger demographics.

• With large masses of younger demographics through social

networking sites Napster will be able to:

• keep the attention of potential customers.

• going viral through word‐of‐mouth highly-

effective.


MARKETING IMPLEMENTATION

• Chat rooms and groups,

• promote products to audiences.

• pull customers away from higher priced competition.

• Expanding partnerships with Apple’s competitors,

• very beneficial

• Users can use their device

• instead of purchasing from a limited line of products.

(CONT.)


MARKETING IMPLEMENTATION

• Going out of business with Best Buy’s biggest direct competitor, Circuit City,

• opportunity for in store point‐of‐purchase to existing

and new Best Buy customers.

• Enabling customers to purchase in‐store or via

Napster.com and Best Buy

• will expand the customer’s purchasing power.

(CONT.)


SWOT ANALYSISSTRENGTHS

Strong brand name and reputation

Large music library

Partnerships with other industry leaders

Convenient and easy to use

36

WEAKNESSES Limited avenues for differentiation

Lack of compatibility

Pricing Structure

OPPORTUNITIES Young and rapidly growing market

Decline in illegal file sharing

Emerging technologies

THREATS Powerful competition

Potential for disintermediation

Emerging technologies


HOW IT WORKS• Everyone connects to central server.

• Server compiles and distributes index.

• Server also provides “chat room” function.

• independent of file-sharing aspect.


NAPSTER PROTOCOL DETAILS

• Complex client/server protocol with central site.

• Users can register, log in, etc.

• Registration message includes age, income, and education…

• Central site can bounce users, ban them, etc.

• Message groups / chat rooms, searching/browsing, upload/download.

• File transfer is direct, and doesn’t go through napster.com’s site.

38


SEARCHING AND INDEXING

• Client sends search or browse requests to central

site.

• Can browse some other user’s files.

• Response come back from central site.

• Only explicitly-shared files should be retrievable.

• Only handles MP3.

• “Wrapster” can package other file types in

MP3 envelope.


NAPSTER TOPOLOGY

napster.com


FILE TRANSFERS• Transfer request goes to central site.

• Data transfer is direct.

• Client and server both notify central site of status,

to support load limits.

• Clients can use any port numbers.

• Firewall bypass mechanisms – reverse who does active

connect.


CHAT ROOMS• Conversations among users.

• Nominally moderated.

• All traffic flows to/from central site.

• Multiple topics, etc.

• Clients can have “hot lists” of their friends.


THE RISK FACTORS

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Factor #1

Customer Churn

Existing subscribers may cancel theirsubscriptions to the Napster service formany reasons, including a perception thatthey do not use the services enough tojustify the expense or that the service doesnot provide enough value or availability ofcontent relative to our competition.

Factor #2

Rely on the brand value

We believe that maintaining and expandingthe Napster brand is an important aspect ofour efforts to attract and expand our userand advertiser base. We have embarked ona broad branding program to ensure thatour position in the digital music sectorcontinues to be strongly associated with theNapster name.Factor #3

Different Competitions

Napster faces significant competition fromtraditional retail music distributors such asTower Records, as well as online retailerssuch as Amazon.com. To the extent thatconsumers choose to purchase media innon-electronic formats, it may reduce oursales, reduce our gross margins, increaseour operating expenses and decrease ourprofit margins in specific markets.

Factor #4

Rely on the third party contents

We rely on third-party content providers,including music publishers and music labels,to offer online music content that can bedelivered to users of our service. Rights toprovide this content to our customers,particularly publishing rights, are difficult toobtain and require significant time andexpense.Factor #5

Lack of popular content

Our business is affected by the release of“hit” music titles, which can create cyclicaltrends in sales distinctive to the musicindustry. It is not possible to determine thetiming of these cycles or the futureavailability of hit titles.

Factor #6

Internet usage dependence

The growth of our business depends on thecontinued growth of the Internet as amedium for media consumption,communications, electronic commerce andadvertising. Our business will be harmed ifInternet usage does not continue to grow,particularly as a source of media informationand entertainment and as a vehicle forcommerce in goods and services.

Factor #7

The strategic marketing relationsMaintenance and AddWe depend on a number of strategicrelationships with third parties to co-marketour services. There is no guarantee that wewill be able to renew existing agreements orenter into new agreements on acceptableterms, or at all.

Factor #8

Fluctuations in quarterly results

Our quarterly operating results mayfluctuate from quarter to quarter. Wecannot reliably predict future revenue andmargin trends and such trends may cause usto adjust our operations.

Factor #9

Security and Stability

Online commerce and communicationsdepend on the ability to transmitconfidential information and licensedintellectual property securely over privateand public networks. Any compromise ofour ability to transmit such information anddata securely or reliably, and any costsassociated with preventing or eliminatingsuch problems, could harm our business.

Factor #10

Win-Win Dig. Rights management

We must provide digital rights managementsolutions in the digital music distributionservices to address concerns of contentproviders and artists. Also Consumers maybe unwilling to accept the use of digitalrights management technologies that limittheir use of content, especially with largeamounts of free content readily available.Factor #11

Intellectual property infringement

We receive claims and inquiries from thirdparties alleging that our internallydeveloped technology, or technology welicense from third parties, may infringe theother third parties’ proprietary rights,especially patents.


ADVANTAGES OF NAPSTER Napster is compatible with most of the portable media devices, where Apple

allowed only iPod.

Company also retained previously used peer-to-peer structure, allowing customersto trade files with each other directly, but it has added security layer to preventfrom trading unauthorized songs.

Customers gained access to millions of songs.

Pay-per-track prices were cheaper than competitors’.


PORTER FIVE FORCESPower of SuppliersPower of Suppliers

Power of BuyersPower of Buyers

CompetitiveCompetitive

Substitution ThreatsSubstitution Threats

New Entry ThreatsNew Entry Threats

? Medium

High

High

High

Medium

?

?

?

?


PESTLE ANALYSIS

PoliticalPolitical EconomicEconomic SocialSocial TechnologicalTechnological LegalLegal EnvironmentalEnvironmental

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NAPSTER EVALUATIONUnderstanding customer needs and behavior:

• Napster saw its competitor’s strategy to use pay-per-download services andcreated completely different way of accessing the songs.

• Company saw that customers needed different approach to music, where it wouldbe a lot cheaper to access the same amount of tracks.

• Napster allowed almost all portable media devices.

• Company was trying to find the ways to regain the trust.


DIG. MEDIA IN IRAN

Beeptunes is an Iranian digital media website and hasdifferent revenue model and customer relationship toNapster. But we thought that it may be interesting to tellyou about beeptunes although you may hear about it.

Beeptunes make contracts with the music publishers withspecified price and users have their own account. They canpurchase music tracks online with their bank account anddownload the track in quality of the 128/320 kbps.

BEEPTUNES.COM HOMEPAGE – THE SERVICE IS ALSO COMPATIBLE WITH ANDROID

48


FOR YOUR ATTENTION

the napster - kntuwp.kntu.ac.ir/hosseini/co/napster.pdf · new napster (cont.) the environment...

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