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Won't 'discount' like Yahoo!

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Napster will not cut its music subscription prices to match those of rival service Yahoo! Universal Music (YUM), company CEO Chris Gorog said this week.

Napster current charges subscribers $10 and $15 for its standard and premium services, respectively. YUM, which launched last week, is charging $7 for the equivalent of Napster's $15 offering. Commit to a full-year up front and YUM only costs you $5 a month.

Subscriptions are higher-margin products than one-off downloads of the kind championed by Apple's iTunes Music Store (ITMS). It's not known whether Yahoo!'s service is profitably on a per-subscriber basis. Given its insistence that its "introductory" pricing is likely to become the standard tariff very shortly, it probably is making a small profit on each subscription, though clearly not as much as Napster is.

Instead, Yahoo! hopes to attract sufficiently large numbers of subscribers to make up the difference, and with an offering that's essentially identical to Napster's - but for the price, of course - it's hard to see it failing to win over consumers.

Napster, for its part, will maintain its pricing, Gorog said, speaking at a J P Morgan conference. "We are not positioning our product as a discount product," he said, though Yahoo!'s aggressive pricing is likely to establish music as a low-cost commodity. Certainly, digital download pricing, whether through a subscription package or as one-off purchases, has been criticised as being too high, particularly given the downward trend in CD pricing.

Napster last week announced a Q4 loss of $24.1m on sales of $17.4m. Napster's net loss for the full year was $51.4m - up from a loss of $46.4m in 2004. Then, Napster said it expects "modest growth" in its first fiscal quarter of 2006, pegging revenue to come in between $19m and $21m. It hasn't changed those numbers in light of the Yahoo! announcement, and Gorog this week admitted "we frankly have no idea what the impact will be". But it doesn't look good. ®

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