Interview: Napster CTO Bill Pence, Part 1

Following an interview with Virgin Digital's Zack Zalon, BetaNews sat down with Napster Chief Technology Officer Bill Pence to discuss a variety of topics related to digital music and to learn more about the future directions of Napster. Pence shares his perspective about Apple's unwillingness to open up the iPod, the "benefits" that DRM presents, rival RealNetworks "imitating Napster," and whether or not Napster has "sold out."

BetaNews: iTunes hit 250 million downloads in January. How many downloads and song sales has Napster had to date?

Bill Pence: I don't think that you expect me to release any numbers here that aren't already public. I will tell you that we have both an a la carte store and a subscription service. On the subscription sides we do many, many downloads a day so I just don't know that we have broken out the totals.

I think that we released a la carte sales in the past but not total downloads, because it is a bit of apples and oranges. If we were to quote total downloads it would obviously look even better than the way we quote our service now, because we don't typically break out downloads within our subscription service. We've only recently broken out subscribers.

BetaNews: Have the numbers reached Napster's expectations?

Bill Pence: We've been very pleased with them. The subscription service has always been all you can eat as you know, but the minute we launched Napster To Go, the downloads went up even higher because, of course, people were filling players with those tracks. And it is very easy in the Napster To Go service to select a large number of tracks from the search response and just drag them over to the player and have them download and transfer all in one step.

BN: Recent statistic have shown that iTunes has cornered a 70 percent overall share of digital music sales. Can you offer me any figures of what Napster's market share is in comparison?

Pence: Off the top of my head I can't. I think we are the number two player, but I don't have the stats in my head.

BN: How is Napster going to stay ahead of Real and others, now that its store offers portable subscriptions that also use Microsoft's Janus DRM?

Pence: Well we never expected that we would be the only people to have a portable subscription service. Obviously if no one were to follow us into the market it would kind of call into question whether it's a very attractive market. So we fully expect everybody to follow us. And for that matter, I wouldn't be surprised for Apple to come into the subscription market and eventually the portable subscription market, which is a huge turnaround from the general wisdom in the industry a year ago.

BN: There have been some rumors about Apple's intentions to license Janus from Microsoft.

Pence: They are still being very cagey, but when they do it I'm sure that they'll claim to have invented it. Saying that imitation is the sincerest form of flattery is the first response that I would give. We've always tried to be the innovator in terms of being first to market with things like Napster To Go and portable subscriptions. But at the same time we recognize that eventually, as the model starts to stabilize, everyone is going to have the same basic components and there is value in that.

The more people who offer a Janus based service, the more fuel there is for making more Janus compatible devices available and the more reliable those devices will be. More innovation and price commoditization will occur in that market, so that is good.

Having said that, we have always believed that our key long-term issue is the value of the brand and the association of the brand as a pure play on music. RealNetworks is a lot of different things to a lot of different people. It's a technology company, it's a software company, it offers all different flavors of entertainment and it's more of a kitchen sink. We have a very clear focus on music; that is what the brand stands for.

Our sign up numbers for Napster To Go and for the service in general in the last couple of months have been very strong. I don't think that we are particularly worried that Real is going to impede our growth in that regard.

BN: Do you feel the current subscription price point is appropriate? New entrants may be able to come into the market and undercut Napster.

Pence: You can never say that they wouldn't do it. I will tell you that I think studies we have done indicate that it is a fair price to the consumer for the value that is returned. I think that our experience in the market so far has been that consumers actually do view it that way. So whether or not another company wants to undercut us, I don't know.

We were asked the same question in the days we were offering a $9.95 subscription and 99-cent tracks. Others have come along; I think including Virgin, that offer a la carte tracks at a lower price. Wal-Mart is a great example. They offer tracks a la carte at a lower price than we do, but we outsell Wal-Mart on a la carte track sales. I think there's a point where the difference in price in non-material to consumers and they are more attracted to the overall service, the brand and the experience. People may try to undercut us, but I don't think that we are necessarily concerned about that.

BN: Is the subscription pricing superior to an a la carte pricing model?