Napster tunes into mobile ringtones

Mobile Internet, The, Dec, 2004

Napster is to enter the mobile-phone ringtone market next year, launching their own brand service on the back of mobile content delivery company Dwango Mobile.

The announcement comes after U.S. market-watcher PJ McNealy of American Technology Research (ATR) downgraded parent company Roxio's stock from Hold to Sell.

The Dwango deal will see the formation next year of Napster Mobile, a service pitched at North American consumers, initially selling ringtones, but presumably with music downloads in mind when the bandwidth is there to make it practical.

The more ringtones people buy through the Napster-branded service, the more points they earn, points which can be used to offset the cost of PC- or music-player-based track downloads. The terms of the deal were not disclosed, so it's not yet clear to what extent the deal will earn Napster revenue directly, or whether it's more about getting mobile-phone owners to buy song downloads or subscriptions from the company.

Napster's--and thus Roxio's--performance ultimately depends upon paying-user numbers, something the company has to date been unwilling to put a figure to. Getting the number up in order to increase revenues to the point at which its current share price is justified will require gaining many more customers to buy into Napster's high margin subscription services. Its efforts to do so "have been limited by the number of devices that support the service and a lack of consumer understanding about why they should pay nearly $180 per year for access to music," McNealy said.

If BestBuy's promotional plans for Napster kick in as planned, and the number of compatible devices in use rises thanks to the Holiday sales period, Napster may be able to show solid revenue growth. But whether it will be enough to drive sales to four times the $3540 million it expects to record in the year to March 31, FY2005, in order to justify Roxio's share price on the back of anticipated FY2006 revenues, remains to be seen.