Original URL: http://www.theregister.co.uk/2005/07/09/napster_rochester_survey/

Students refuse to buy a single song from Napster

Rivals cash in

By Ashlee Vance

Posted in Financial News, 9th July 2005 13:32 GMT

Napster has put a new twist on the notion of being a loss leader. It has actually managed to sell more songs for rival online music services than for its own product, according to a survey conducted by a university customer.

Not a single University of Rochester student admitted to buying a song via Napster during the Fall 2004 semester. Instead, eight per cent of the students turned to the likes of iTunes and Musicmatch to buy songs they enjoy. That's an ominous sign for a company spending millions to seed the university market with music in the hopes of unseating Apple as the clear leader in online music.

Most troubling for Napster, things don't appear to be improving on the music purchase front. During the Spring 2004 semester, a whopping 1 per cent of students did buy tracks off the Nap. Now no one does.

The situation worsens with Napster's small number of specialty "buy only" songs not included with its standard service. Two per cent of students purchased such tracks from Napster, while 39 per cent turned to rival services to secure their songs.

The University of Rochester has boasted about being one of the Napsterized schools that force music rental services on students in the hopes of curbing P2P file-trading. In almost every case, Napster offers such schools a massive discount off its $9.95 per month fee, making it easier for the schools to stomach the cost of opening music shops. The schools also typically receive hardware donations from unnamed sponsors.

Napster has spent tens of millions on a massive marketing campaign, attacking the "$10,000" cost it takes to fill an iPod. (This is a meaningless statistic when you consider that iPod owners are free to add their existing CD collections and those of friends to their device at no cost.) In addition, Napster has subsidized device makers, attempting to create interest in the non-iPod music player market. This strategy left Napster reporting a $24m fourth quarter loss.

A host of companies, most notably Napster and Real, appear convinced that consumers will buy into the concept of renting their music. This strategy requires a massive cultural change in which people must accept restrictions on when and how they can listen to music that is of lower quality than a CD. If you pay a monthly fee forever, you receive all the music one could desire. A decent idea until you realize that most people nurture their music collections to reflect their tastes and don't want access to all the blather ever created.

For the rental model to succeed, Napster and others would, er, have to turn a profit at some point. The companies appear to believe that a critical mass of consumers would deliver black ink.

But in today's reality, hardware makers - mostly Apple - are the ones making serious cash off online music.

To Napster's credit, University of Rochester students do embrace the streaming and tethered download aspects of the service. A healthy 47 per cent of students added a song they liked to their streaming playlist, while another 39 per cent acquired a tethered download. This helps explain why students would be reluctant to purchase a song, since they have ready access to the music at no additional charge.

Such positives fail to impress though as Apple nears 500m songs downloaded from iTunes and generates almost as much revenue in one day off the iPod as Napster makes in an entire quarter.

For Napster's college ventures to result in long-term success, it must overwhelm the students with the quality of the service. And, in fact, the vast majority of kids at Rochester find Napster's software very easy to use. Even so, 56 per cent of the students use other services than Napster even though they receive Napster "for free." In addition, many students complained about Napster's Windows-only approach, its lack of selection and its DRM policies - not to mention their continued fondness for P2P applications.

Those schools that add the cost of Napster to students' fees are grumbling about the service as well.

Middlebury College, for example, published a damaging expose in a school paper after the institution decided to re-up its Napster trial.

"While Napster refuses to let schools discuss the program's cost with students, The Campus has learned that the SGA (student government association) allocated $10,000 this year for Napster and is predicting an annual cost of $20,000 to continue the offering Napster next year," reported Ben Salkowe, in the Middlebury Campus. "Although only 50 percent of the campus uses the Napster service, all students pay for it through the SAF (student activities fee), an annual $220 fee which all students are required to pay for funding of student organizations.

"The actual cost of providing service for every student is believed to have been just under $40,000, however an unidentified outside sponsor paid part of the costs, and not all students took advantage of the service. None of the students or administrators involved in the agreement would name the sponsor - some of the program's extreme critics believe the Recording Industry Association of America (RIAA) sponsors Napster college programs in their first year to encourage well-known schools to join the program."

A disconcerting aspect about many of the Napster college deals is that the schools are paying for the service now during trial periods and then saying they will bill the students an undetermined amount should they buy in for the long haul. Napster refuses to allow the schools to reveal how much they pay for the service - even at publicly funded state schools - and could theoretically raise the price well over these cut rate trials in the years to come. This means Napster could be laying the groundwork for a very expensive future - bad news for parents who must already spend up to $160,000 for top four-year schools like Middlebury.

Schools such as Penn State have equated charging students for a music shop with billing them for bus services and computer labs. Surely parents would prefer to shell out for actual learning devices than to make sure their children can receive a tethered download of the latest Britney Spears album?

Are parents pleased to see the record labels push these schools to open music stories with threats of lawsuits hanging over the kiddos' heads? Are they aware this is going on? Let us know.

In the meantime, check out the Rochester survey (PDF) for yourself. ®

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