It looks like Napster is up for sale. The original Napster was the first big peer to peer music file sharing system and was hugely popular at the time. Of course in spite of the big record companies relentlessly suing music fans as well as kids, grandmothers, and people who don’t even have computers, more files are being shared than ever. Over time the original Napster went belly up, the name was bought and applied to an actual licensed online music store. Unfortunately for the new owners of the name, between the time Napster became a household name and the time they launched Napster 2.0, the iPod had begun its rise to digital music dominance and nothing that Napster offered for sale could be played on any iPod. This is because they chose to sell music equipped with Microsoft DRM which was compatible with most of the portable digial music players on the market but not with any of the ones that most people actually wanted to buy. The other problem they have is that the wholesale prices that the big four labels charge for digital downloads is so high ($0.70 /song) that after marketing, bandwidth, and credit card transaction costs, most music stores that sell major label music have no realistic hope of ever breaking even, much less being profitable. The one exception is Apple. They have manageed to break even on the iTunes store. They however make very healthy profits on the iPod. By having the most desirable product at a relatively competitive price, they sell huge quantities of high margin hardware and at the same time dominate the barely break-even digital download business because their’s is the only store with major label songs that is DRM compatible with their hardware.

The only way to compete effectively with iTunes is to sell music compatible with the iPod. Given that Apple so fair has declined to license their DRM scheme to any other store, the way to do this is to skip the DRM. This of course also means skipping the major label music. To me this is no great loss. The number 2 online music store now is EMusic. Emusic sells music from independent bands and labels with higher bit-rate files than iTunes and no DRM. Because there is no DRM, the mp3 files from emusic can be played on any device from any manufacturer. By all appearances emusic is actually a viable business in spite of shunning the big labels and selling at a fraction of the price of their competitors ($.25/song or less).

Napster on the other hand has been a money loser every quarter since they started and see’s no realistic hope of profit int the foreseeable future. In light of all this, the management of Napster has decided to put the company up for sale. Anybody want to make an offer?