* Roxio buys Pressplay as foundation for reborn Napster
Sony Music Entertainment and Universal Music Group announced last month that they planned to sell their Pressplay online music service to Roxio. In a truly ironic marketing maneuver, Roxio plans to relaunch the service under the Napster brand, which it acquired last November. The original Napster, of course was driven out of business by the very companies that now hope to exploit its name recognition and revive its corpse. Will consumers be fooled by this? I doubt it.
Sony Music Executive Vice President Robert Bowlin explained that since the music industry is in the content business, Sony and UMG had no need to own the actual system of digital distribution. In truth, the music industry has simply failed to figure out how to sell digital music to consumers. Sony and UMG have spent an estimated $60 million in developing Pressplay since it was launched in 2001.
A similar amount has been spent on MusicNet, the digital music service run by Real Networks, Warner Music Group, EMI Recorded Music and BMG Entertainment.
But Pressplay and MusicNet have only generated an estimated 100,000 subscribers between them. Compare this to the success of Apple’s new iTunes service, which sold about two million songs in its first 16 days, and the Kazaa P2P network, which has about 4.2 million people online at any given time. The iTunes store could become a future model for Roxio, which plans to revamp Pressplay for better ease of use and offer an a la carte download before it becomes the Frankenstein Napster in March 2004.
The recent court decision, which permitted the Grokster and StreamcastP2P services to stay in operation may have also helped prompt the sale of Pressplay. But Pressplay’s release by the record labels signals that perhaps the five large record companies will not attempt to prevent digital distribution systems that it doesn’t directly manage from licensing its music. This would be a very good for companies that might have a clue about how to do this better than record labels.
Of course UMG and Sony are getting an equity stake in Roxio as part of the Pressplay deal. In a cash and stock transaction valued at about $40 million, the two labels will get approximately 3.9 million shares of Roxio common stock, $12.5 million in cash and a representative on Roxio’s board of directors. In the event that the reborn Napster service actually makes a profit, both UMG and Sony will get an additional $6.25 million each.
In the meantime, the backers of MusicNet have pumped another $10 million into the venture. The money has come from Real Networks, WMG, EMI and BMG parent Bertelsmann. But the lead backer, Real Networks, has just purchased the rival Listen.com service. Realworks could drop distribution of MusicNet, further condemning that service towards even greater obscurity in the digital music marketplace.
