Dixons Group, The Link, PC World, Currys, Target), and
others (Molson, Miller, Energizer, Nestlé).
Continue to pursue strategic acquisitions and comple-
mentary technologies– this is another route to innovation
and developing new services.
Customers
The Register (2005) reported that in the UK, by mid-2005,
Napster UK’s 750,000 users have downloaded or streamed
55m tracks since the service launched in May 2004. The
company said 80 per cent of its subscribers are over the age
of 25, and half of them have kids. Some three-quarters of
them are male. Its subscribers buy more music online than
folk who buy one-off downloads do and research shows that
one in five of them no longer buy CDs, apparently.
Distribution
Napster’s online music services are sold directly to end-
users through the web site (www.napster.com). Affiliate
networks and universities have procured site licences (in
the US, a significant proportion of subscribers are univer-
sity users). Prepaid cards are also available through retail
partners such as Dixons in the UK, who also promote the
service.
Napster also bundles its service with hardware manu-
facturers such as iRiver, Dell, Creative Labs, Gateway
and Samsung.
Competition
Napster see their competitors for online music services in
the US as Apple Computer’s iTunes, Amazon, RealNetworks,
Inc.’s Rhapsody, Yahoo! Unlimited, Sony Connect, AOL
Music, MusicNet and MusicNow. In the UK, in 2005, new
services with a subscription model were launched by retail-
ers HMV and Virgin. They expect other competitors such as
MTV Networks to enter the market soon.
Napster (2005) believe that the main competitive factors
affecting their market include programming and features,
price and performance, quality of customer support, com-
patibility with popular hardware devices and brand.Employees
As of 31 March 2005, Napster had 135 employees, of which
10 directly supported the online music service (maintaining
content and providing customer care), 25 were in sales and
marketing, 63 were in engineering and product development
and 37 were in finance, administration and operations. The
costs of managing these staff is evident in Table 5.3.Risk factors
In their annual report submission to the United States
Securities and Exchange Commission, Napster is required
to give its risk factors, which also give an indication of
success factors for the business. Napster (2005) sum-
marises the main risk factors as follows:CHAPTER 5· THE INTERNET AND THE MARKETING MIX
Table 5.3 Summary of Napster finances from Napster (2005)
Year Ended March 31
2005 2004
(in thousands, except per share amounts)
Net revenues $46,729 $ 11,964
Cost of revenues 37,550 10,530
Gross profit 9,179 1,434
Operating expenses:
Research and development 12,107 11,940
Sales and marketing 39,215 15,647
General and administrative 23,316 21,217
Restructuring charges — 1,119
Amortisation of intangible assets 1,936 2,172
Stock-based compensation charges(1) 676 904
Total operating expenses 77,250 52,999
Loss from continuing operations (68,071) (51,565)
Other income, net 1,091 634
Loss before provision for income taxes (66,980) (50,931)
Income tax benefit 15,547 4,515
Loss from continuing operations, after provision for income taxes (51,433) (46,416)
Net loss $(29,506) $(44,413)