Ever hear of ARPU? Average revenue per unit? That's one of the metrics that cellular phone carriers ("cellcos" for short) use to gauge their success. It's also one of the reasons that the cost of your cell phone was either partially or entirely subsidized. Or, in my case (which was dumb of me), I let the phone company pay me $100 to take a cell phone. Cellcos are usually willing to subsidize the cost of the phones they provision because they'll more than make it up on the service contract you sign with them. And these days, they try to goose the contracts by signing you up for value added services above and beyond basic voice provision. This drives their ARPU up. So, it should come as no surprise that this model of giving away MP3 players (if you can call them that, more on that in a second) in order to sell monthly services (straight-out an ARPU model) is one that music subscription outfits like Napster UK are moving to. According to The Register, Napster vice president Leanne Sharman said:
We see a parallel in the UK between the mobile phone industry and the digital music business. The mobile industry is more mature than ours, but it began as a pay-as-you-go business reliant on handset sales. This is the model for the future of the digital music industry where content is king and MP3 players are disposable.
Boy, talk about yer loaded, but brilliant quotes! (you'll see why in a bit).
Starting September 14, anyone who signs up for at least a three month contract to Napster UK's Napster-to-Go service will get a free 512MB Sandisk Sansa m230 MP3 player. While I haven't found any indication that it applies to Napster-to-Go in the US, it's only a matter of time before the ARPU model is commonplace with music and video subscription services (a ways back, Sun's CEO Jonathan Schwartz predicted that cars would one day be free under the same basic model. Free cars?).
Napster's Napster-to-Go service cost about 15 pounds (UK) per month (approximately US$28 at the going rate) and the player isn't worth much. You can get them dirt cheap on eBay. More to the value of this offer however is what digital rights management (DRM) technology it relies on and where things are going in that space. In order for Napster to (a) prevent you from giving away the copies of the music you subscribe to and (b) be able to expire your subscription when you stop paying for the service (thereby
deleting deactivating any subscription-related music on your portable player), it relies on Microsoft's DRM.
So what's the problem? (besides the fact DRM is involved and DRM is problematic no matter where it comes from). To date, Microsoft has relied almost exclusively on its PlaysForSure-branded DRM-licensees like Napster (content source), Yahoo (content source), AOL (content source), FYE (content source), iRiver (device maker), Creative (device maker) and Samsung (device maker) to put a stop to Apple's momentum with its content source (the iTunes Music Store) and devices (iPods). Much the same way Microsoft plundered Apple in the PC space by licensing operating systems to PC manufacturers and letting competition between PC manufacturers drive prices down and Microsoft's software into the market, Microsoft was hoping to do the same in the digital entertainment business. But this time, it hasn't worked against Apple and Microsoft has since decided to switch gears by launching its very Apple-esque Zune brand.
Like Apple with its iTunes software, iTunes Music Store (iTMS), and iPods, Microsoft will be the sole source of software (Windows Media Player), the content (Zune Online or something like that) and and the portable playback hardware (Zune branded devices). And like Apple, if the current reports are true, the Zune brand will eschew full compatibility with the PlaysForSure-ecosystem. Long term, it's hard to say what the outcome of Microsoft's play will be. But at the very least, it calls into question the long-term viability of the PlaysForSure ecosystem and all of the vendors that participate in it. Fighting Apple was hard enough. Now, in addition to Apple, they'll have to do battle with Microsoft too -- their supposed partner in the PlaysForSure gambit. It's for this reason that I wouldn't be so quick to sign up for a PlaysForSure-based service or purchase a PlaysForSure compliant device.
What was it that Sharman said? "MP3 players are disposable."
If you ask me, that's a harbinger of things to come. Yah. I'd be a bit pissed if you sold me a PlaysForSure-compliant device only to find out that it was going to be of little or no value to me once the PlaysForSure ecosystem begins to whither on the vine thanks to Apple's existing juggernaut and Microsoft's new Zune. But, if you gave the device to me with the idea that (a) I could throw it away if it one day becomes useless and (b) should that point in time come where I throw it away, you'll replace it with something that works, that's a different story.
This is where I think the existing PlaysForSure-vendors (content sources as well as device manufacturers) will need to head if they are to remain players in the digital content space. I guess they could stay with Microsoft's DRM if they wanted to. But that's risky considering what Microsoft has already done to them with Zune. Once burned, twice shy. In an effort to distance themselves from Microsoft (as well as compete against it), they'll need to sever their ties with Redmond and find a new partner for DRM (perhaps there's life for Sun's Project DReaM after all). In the course of doing so, however, they'll need to make some sort of compatibility guarantee to their customers. The kind where they say "Hey, customer... don't worry.. if by virtue of some technology decision we make, your MP3 player becomes obsolete, we'll give you a new one."
Finally, bear in mind that usage of the term "MP3 player" is a complete misnomer and, to some extent is confusing and misleading. I'm sure there are people out there who, when they see the news about Napster's give away, will think that Napster's subscription service is based on MP3-formatted music. Sure, these devices will undoubtedly play files that are in the MP3 format. But that's not why Napster and other services will be giving them away. They'll be giving them away with the understanding that you'll be subscribing to a service that explicitly relies on files that are not delivered in the MP3 format (MP3 has no DRM capability built into it). So, when someone is giving away a portable music player for something other than playing back MP3s, should they call it an MP3 player, or should they call it something else?