Will Carriers Save The Subscription Music Business?

The news this week that Napster is relaunching with a $5-a-month subscription plan that includes 5 free MP3 downloads would appear to be a troubling development for RealNetworks’ (RNWK) rival Rhapsody service, which will set you back $13 a month for a streaming service that lacks the free MP3s. It is also no doubt irritating to Real that it comes from a company that is now a unit of Best Buy (BBY): in the past, the Best Buy digital music store was a re-branded version of Rhapsody, which came pre-loaded on non-Zune, non-iPod music players sold by the retailer.

Earlier this week, I chatted about the situation with Neil Smith, VP of business management for Rhapsody America. His spin on the Napster story is that what they’re really doing is going head-to-head with Apple’s (AAPL) iTunes store–that Napster is “all about the downloads.” He says Napster basically wants to use the new approach to get into the pre-paid music gift card market, using the free downloads as a driver to steal share from Apple. He thinks selling tracks is more their goal than “turning the tide toward subscription from purchase,” which is where Real is focused.

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