Digital Audio Insider -- the economics of music and other digital content

  digital audio insider


Digital Audio Insider is David Harrell's blog about the economics of music and other digital content. I write from the perspective of a musican who has self-released four albums with the indie rock band the Layaways.

My personal website has links to my LinkedIn and Google+ pages and you can send e-mail to david [at] thelayaways [dot] com.

If you enjoy this site, please consider downloading a Layaways track or album from iTunes, Amazon MP3, Bandcamp, or eMusic. CDs are available from CD Baby and Amazon.


Analog Industries
Ars Technica
Brad Sucks Blog
Broken Record
Digital Music News
Duke Listens
Future of Music Coalition Blog
LA Times Technology Blog
The ListeNerd
MP3 Insider
Music Ally
Music Machinery
Music Think Tank
The Music Void
New Music Strategies
Online Fandom
Pakman's Blog
Rough Type
Virtual Economics

The Big Picture
Core Economics
The Long Tail
Marginal Revolution
The Undercover Economist

17 Dots
Shake Your Fist
Sounds Like the 80s
Unleash the Love

January 2006
February 2006
March 2006
April 2006
May 2006
June 2006
July 2006
August 2006
September 2006
October 2006
November 2006
December 2006
January 2007
February 2007
March 2007
April 2007
May 2007
June 2007
July 2007
August 2007
September 2007
October 2007
November 2007
December 2007
January 2008
February 2008
March 2008
April 2008
May 2008
June 2008
July 2008
August 2008
September 2008
October 2008
November 2008
December 2008
January 2009
February 2009
March 2009
April 2009
May 2009
June 2009
July 2009
August 2009
September 2009
October 2009
November 2009
December 2009
January 2010
February 2010
March 2010
April 2010
May 2010
June 2010
July 2010
September 2010
October 2010
November 2010
December 2010
January 2011
February 2011
March 2011
April 2011
May 2011
June 2011
July 2011
August 2011
September 2011
October 2011
November 2011
December 2011
January 2012
February 2012
April 2012
May 2012
June 2012
August 2012
October 2012
November 2012
December 2012
January 2013
February 2013
March 2013
June 2013
August 2013
February 2014
March 2014
September 2014
December 2014
March 2015
October 2015
November 2015
December 2015
October 2016

May 19, 2009

Breaking Down the New $5 Napster Subscription
by David Harrell
Napster banner

I'm curious to find out if Napster has negotiated any changes in how it compensates labels for downloads and streams for its new $5 a month subscription, which offers unlimited streaming and five mp3 downloads each month. If not, it's hard to see how Napster can make any money from the subscription revenues alone.

My assumption has always been that both Napster and Rhapsody were using the health club business model for their subscription services. Because both services pay record labels a fee for each streamed song (around one cent), they lose money on customers who stream a lot of music each month and make money on those who don't. For example, the basic Rhapsody subscription fee is $12.99 a month. Ignoring all other costs, customers who stream fewer than 1,299 tracks a month are profitable, while Rhapsody loses money on the "gym rats" who stream more than that number each month. In reality, due to other costs, the breakeven number is no doubt considerable smaller.

But if the monthly subscription fee is only $5 -- and you're tossing in five mp3 downloads -- that number gets even smaller. Even without the mp3 downloads, subscribers would cross the profitable/unprofitable line at 500 song streams a month, which works out to just 17 songs a day.

My band hasn't sold many downloads via Napster, but for the few that we have, I've seen a payout range from 61 to 94 cents. (I'm assuming the latter number is for non-US sales.) But even if you assume a standard wholesale price of just 60 cent for Napster downloads, which is a dime less than the iTunes wholesale price on 99-cent downloads, the cost of five downloads a month would eat up $3 of the $5 subscription fee. After that, less than 10 streams a day would account for the remaining $2.

Napster is, however, now owned by Best Buy, a retailer that is very familiar with the idea of "loss leader" products. Perhaps it's worth losing money on some subscriptions to get more customers -- so to speak -- in the store. It's also true that the biggest consumers of music tend to be the biggest purchasers of music, so perhaps these loss-leader subscribers will make up for it by buying more mp3s than they receive with their subscriptions. There's also the customer inertia aspect -- there's no rollover provision for the mp3s so Napster isn't on the hook for unused mp3 downloads. And maybe the $5 monthly fee is small enough that inactive subscribers are less likely to get around to cancelling their subscriptions.

Still, it's a bold pricing strategy and despite the previous lack of broad appeal for subscription music services, I won't be surprised if Napster picks up a considerable number of new subscribers. As Jon Healy noted in this post for the L.A. Times technology blog:
Napster's new price is so low, it could change the way people evaluate a subscription-music service. Instead of wondering whether it's worth paying a monthly fee for something with no residual value (i.e., the tethered downloads and the online jukebox), would-be subscribers simply have to decide whether it's worth buying five MP3s a month from Napster in exchange for access to that jukebox.

link 3 comments e-mail listen to the Layaways on Spotify

More Digital Audio Insider: Newer Posts Older Posts

Subscribe:   RSS Feed

Add this blog to, Digg, or Furl. Follow David Harrell on Google+.

The Digital Audio Insider Twitter feed:

    Digital music jobs: Looking to hire? Looking for a job? Check out the digital audio insider job board.

    Popular Posts

    A Long Tail Experiment
    By the Numbers: Using Statistics to Quantify Audience Devotion Owes Me Sixty Cents
    An Interview with Jonathan Segel of Camper Van Beethoven
    Price Elasticity of Demand for McCartney
    Sony and eMusic: What I Missed

    The Digital Pricing Conundrum series:
    Part One Part Two Part Three Part Four


    Out Now -- "Maybe Next Year" -- The New Holiday Album:

    <a href="">Joy To The World by The Layaways</a>

    "This is a sweet treat, deliciously musical without being overbaked for mass media consumption." -- Hyperbolium

    "Perfect listening to accompany whatever holiday preparations you may be making today." -- Bag of Songs

    O Christmas Tree - free mp3 lyrics and song details
    Away In A Manger - free mp3

    Download from eMusic, iTunes, Amazon MP3, or Bandcamp. Listen to free streams at

    album cover art from The Space Between

    <a href="">Keep It To Yourself by The Layaways</a>

    "...about as melodic and hooky as indie pop can get." -- Absolute Powerpop

    "Their laid-back, '60s era sounds are absolutely delightening." -- 3hive

    "...melodic, garage-influenced shoegaze." -- RCRD LBL

    Where The Conversation Ends - free mp3
    January - free mp3
    Keep It To Yourself - free mp3

    Download from eMusic, iTunes, Amazon MP3, or CD Baby, stream it at or Napster.

    album cover art from We've Been Lost

    <a href="">Silence by The Layaways</a>

    "The Layaways make fine indie pop. Hushed vocals interweave with understated buzzing guitars. The whole LP is a revelation from the start." -- Lost Music

    "Catchy Guided by Voices-like rockers who lay it on sweetly and sincerely, just like Lionel Richie." -- WRUV Radio

    Silence - free mp3 lyrics and song details
    The Long Night - free mp3

    Download from eMusic, Amazon MP3, or iTunes, stream it at, Napster, or Rhapsody.

    album cover art from More Than Happy

    "These are songs that you want to take home with you, curl up with, hold them close -- and pray that they are still with you when you wake up." -- The Big Takeover

    Let Me In - free mp3
    Ocean Blue - free mp3

    Download from eMusic, Amazon MP3, or iTunes, stream it at, Napster, or Rhapsody.

    More Layaways downloads:

    download the Layaways at eMusic download the Layaways at iTunes

    the layaways website