In a sign of a shakeup in the online music scene, Napster Inc is taking a new stab at free music, but with limits.
The news marks a shift for Napster, which started in 1999 as a renegade service that had as many as 70 million members using it for free downloads before it was shut down by the courts in 2001 for massive copyright violations.
Analysts say the move is a sign that Napster and others must find new strategies to compete with the market leader Apple Computer Inc's iTunes in the new field of legal online music.
In launching a new ad-supported service, Napster "becomes the first legal digital music service to offer music fans free, on-demand listening to over two million major and independent-label tracks," according to a company statement on Monday.
The catch is that users will be able to listen to songs only five times before being prompted to pay 99 cents for a download or about US$10 a month for a subscription. The free songs are in a "streaming" format that cannot be copied or downloaded to another device.
"Napster was born of the idea of eliminating all barriers to discovering, enjoying and sharing music and of putting the power in the hands of fans," said Chris Gorog, Napster's chairman and chief executive.
"With a vision to empower music fans in a legal environment, with an open, all-inclusive platform, we are very excited to share our new free music experience at Napster.com," he added.
After the original Napster was shuttered, the name was acquired by Roxio software, which then changed its name to Napster and relaunched as a paid service in 2003.
The new Napster has some 500,000 subscribers but has struggled financially. In its latest fiscal quarter, the Los Angeles-based firm lost US$16.7 million, compared with a US$14.9 million loss in the same period a year earlier.
Ted Schadler, a consumer technology analyst at Forrester Research, said the Napster plan is "an interesting model, but it doesn't begin to solve the problem."
Schadler said music subscription services "are more like radio than ownership, and nobody wants to pay for radio."
As far as pay-per-download, an estimated two-thirds come from Apple's iTunes Music Store, with Napster, RealNetworks and others scrambling for market share.
"It's going to be tough for Napster," said Schadler, who maintains there is room for "a small number of players" in digital music.
Gene Munster, an analyst with Piper Jaffray, upgraded Napster shares on the announcement, saying the new service has potential.
"We believe this is the beginning of a Napster.com that will evolve into a music `community site,' where listeners can start by hearing songs for free, make recommendations and post reviews, link Web sites to Napster.com tracks and, if looking for the ability to take the music with them or own the music, sign up for the Napster music service and portable subscription," Munster said. "Napster.com can create a destination site for music fans and, at the same time, lower subscriber acquisition costs by earning ad revenue on the site."
Munster pointed out that Napster "appears to have been able to get a strong portfolio of companies advertising on the site."
David Card, analyst at the technology research firm Jupiter Research, also sees potential in the new service.
"I think I'd interpret this as a well-executed, aggressive free trial strategy rather than Napster business model version 3," Card said.
"Online users who try out a paid content service in a free trial are six times more likely to convert to paying customers than those who don't," he said.
Mike McGuire, media analyst at Gartner Inc, said Napster and others face a difficult task in competing against Apple, which offers a "seamless" experience with iTunes and iPod music players.
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