How to lose money without even trying

Getting into the music download business is the dot-com equivalent to buying a professional football team. As business investments go, it's a cinch to lose money. Even Steve Jobs would advise against it.
Just how grim are the prospects? Consider the Napster transaction from earlier this week. The struggling online music store was sold for less money than it brought in last year. For those keeping score, Napster's full-year fiscal 2008 sales (ending 31 March) topped $127 million. It sold to American consumer electronics chain Best Buy for $121 million on Monday. Investors bailed on Napster long before management did; the company's market cap has remained well below sales for most of 2008 as sales continued to slip quarter after quarter.

Apparently investors see something rotten in Napster that Best Buy does not. According to the most recent quarterly filing, Napster recorded a net loss of $4.4 million on revenues of $30.3 million. In Europe, a market that Napster once held high hopes for, it managed just $6.9 million (3.84 million pounds) in sales.
Four years ago at the annual MidemNet digital music conference, when I was a correspondent for Reuters, Napster's CEO (then, the holding company was called Roxio) Chris Gorog told me he hoped Napster could bring in between $20 million and $40 million in sales in its first year, a truly conservative outlook that the company did meet in its first fiscal year. At the time, Napster and all its rivals were months behind schedule, mired down by a thicket of red tape still to be negotiated to get so many rights bodies and collections agencies on board. Gorog was under heavy pressure. The company had spent $150 million in start-up costs before Napster had even sold its first track in October, 2003. And, iTunes, launched months earlier in the U.S., had an early lead.

If Napster was going to catch the iTunes Store, it would do so in Europe, the thinking went. It had to come out of the gate quickly here. And it did win one symbolical victory that first year: it launched ahead of Apple with a May, 2004 debut in the UK. It didn't stop there. Sensing music fans wanted an alternative pricing plan, it launched "Napster To Go", an all-you-can-eat plan for a single monthly subscription price. When it launched in Germany in 2005 it did so as the country's first flat-rate service. Taking a bet on mobile, Napster launched a download service on NTT Docomo's iMode in Japan in 2006, and later on 02 in Ireland. It tried fan-friendly marketing gimmicks too. There was a "free download of the day" give-away. And later, acknowledging it would never catch Apple, it sold DRM-free tracks that, it was quick to inform, "would play on iPods and iPhones".
In other words, Napster tried to beat Apple by being the antithesis of Apple: a flexible music download service open to all devices. It made a series of sound bets. It beat Apple to mobile downloads and DRM-free downloads. It went device agnostic. It offered unlimited song playback for a monthly fee, a feature iTunes fans have been clamouring for for years. And it still couldn't make it on its own.
In fact, it was over before it began. Apple's iTunes Store would go on to sell 100 million tracks in its first 14 months compared to Napster's $46.7 million in revenues in its first fiscal year of operation. Napster never came close to catching iTunes.
If there is a lesson to be learned in this week's fire sale of Napster it is this: the company is cursed. It should have been left to die in bankruptcy court six years ago. That would have been the wise move. Despite its uber-geek cachet, consumers were simply never going to take it seriously as a viable music download shop. No matter how much time and energy management spent trying to identify the next market trend, it simply was never going to make a difference. It's Napster, and nobody buys from Napster.
Its new owners will find this out soon enough. To be sure, Best Buy does not need the Napster brand to make a fresh start in the music download business. The software platform, the minute customer base (I've never met a Napster subscriber outside of the actual company and suspect I never will) and the various contracts with labels and rights bodies will be put to good use. But the brand? Best Buy management should once and for all kill off the doomed Napster name. If they do not, well, I have a few professional football clubs I could suggest they buy next.