Switched On: Why XM should nab Napster
Each week Ross Rubin contributes Switched On, a column about technology, multimedia, and digital entertainment:
Earlier this week, Napster noted that it had hired UBS Investment Bank to explore options for the company, including a sale. The move falls in line with a comment from CEO Chris Gorog at its last earnings call that the company's management team did not have their "heads in the sand" regarding a possible acquisition.
They'd also likely want to reassure investors that their heads are not in the clouds or in the stars. However, the reasons are as clear as CD-qualtity music for having their heads somewhere between those two celestial entities -- around the orbit of two geostationary satellites called Rock and Roll that that deliver the XM satellite radio service. The partnership between XM and Napster, which turned a year old in July, has demonstrated why XM would be a suitable white knight to snap up the former pirate haven.
Napster would help XM on the path toward becoming a radio business, not a satellite radio business. Both XM and Sirius offer Internet-based streaming today and Sirius channels are available to Sprint cellular subscribers while XM's are available to Alltell customers. Indeed, both XM and Sirius must recoup the expense involved in operating satellites, but there are many examples of media companies that started out tied to specific technologies, among them AOL's software and HBO's early set-top boxes.
Nowadays, many major cable networks are owned by companies that also have broadcast and often other media assets. One of Napster's highest development priorities is extending its service to wireless providers, a burden that would be eased by having XM's exclusive content behind it. Tighter ties with Internet-based music and portable players could also open up doors for Napster-compatible music players at XM allies GM -- which recently agreed to put iPod-compatible docks in its cars -- and DirecTV, which could add support for Napster-compatible audio to its set-top boxes. Napster.com, which offers limited free listening, could promote XM playlists, channels that feature similar artists, and links to the devices themselves.
Furthermore, while taking on the iPod is tough and lockout from Zune's forthcoming marketing spree will only strengthen competition, Napster has no alternative but to compete. The latest hybrid portable XM radios/digital audio players from Samsung and Pioneer have been received favorably and are highly differentiated. Integrating Napster even more tightly with XM would certainly make for a stronger pitch to XM's subscribers looking for a portable player. Like Microsoft with Zune, Napster could jump the gun on dock standards and be compatible with a growing family of accessories that serve other XM units. Napster's free service could promote not only Napster subscriptions, but highlight playlists and schedules to help drive XM radio subscriptions. Napster could also evolve its offering to include a practically unlimited video selection, a media type that would strain XM's bandwidth constraints.
XM, for its part, would get to enhance its music brand and roll out expanded channels online, an inexpensive alternative to celebrity channels and sports broadcasting rights; it would want to avoid having to reestablish its music brand the way MTV has had to over the years. With products such as Motorola's iRadio threatening the in-vehicle exclusivity of satellite radio and faster wireless networks such as Sprint's WiMax network slated to start beaming high-speed IP into cars by the end of the next year, more experience with IP-based music could prove rewarding for XM.
But the boldest move a combined XM and Napster could make would be to simplify combining their subscrption services. XM's seven million music enthusiast subscribers are a perfect target market for an online music subscription service, the viability of which's business model increasingly appears tied to bundling. If XM follows Sirius' threat to raise subscription prices, it will need to eventually offer more discreet value.
Ross Rubin is director of industry analysis for consumer technology at market research and analysis firm The NPD Group and a contributing editor for LAPTOP. Views expressed in Switched On are his own. Feedback is welcome at fliptheswitch@gmail.com.
