Napster & Digital Music Subscription Services

Napster recently purchased AOL Music Now's subscribers as AOL focuses on a more ad-supported strategy.  TechCrunch does some analysis on the financials of the deal and concludes that it's not a bad deal but that Napster's war chest just got lighter and it adds unprofitable customers.  In fact I'm guessing Napster acquired those subscribers at a lower cost than through its other marketing activities, but this is just a guess.   They recently did the same thing with Virgin Digital, although the number of subs was not material enough for Napster to report (so I'm guessing it was in the thousands to tens of thousands).

On-demand digital music subscription services are good for end users but hard businesses to operate standalone, which is why Napster hired an investment bank last fall to 'evaluate strategic options'.  The thing is, with the cost of goods the way it is, the volume required to profitably operate one of these services is such that one needs extremely low acquisition costs.  That's why I believe the best home for these subscription services is with telecom and cable companies that have billing relationships with tens of millions of consumers and marketing machines to be able to upsell and cross-sell product to them.  I'm sure it would be much cheaper for Comcast to get a million of their subs to opt for the 'digital music' package that had all-you-can-stream music through your super-fast Comast connection.  They could even use it as a loss-leader to acquire and retain subscribers.

Dark horse acquirer for Napster?  Netflix.  I doubt it will happen but think about it.  Their basic value proposition is movie rentals, and they already have a relatively large subscriber base.  They could offer music to their subs via an all-you-can-listen add-on.