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Digital music - who's making money?

• Rory Cellan-Jones
• 8 Oct 09, 08:28 GMT

Suddenly there is a plethora of choices for anyone who wants to obtain music online via a legal route - a rare breed if you believe figures suggesting there are 20 illegal downloads for every legitimate one.

Napster has just relaunched its subscription service in the UK, cutting its starting price from £10 to £5 per month. We7, an ad-supported free streaming service, is boasting that it has more visitors than any other British music website. And of course Spotify is the flavour of the month, adding both a mobile application and desktop downloads for those willing to pay for a premium subscription.

But, as someone who's been using Spotify for a while, and has tried out both Napster and We7 this week, I'm none the clearer as to which will be the first to make a profit - or indeed whether any of them will be around a year or so from now.

Napster, which of course had zillions of users when it was the first major unauthorised download site, has struggled to make an impact since it went legit in 2002. Its UK marketing director Dan Nash told me that a price of £5 a month - which gives you unlimited streaming plus five mp3 downloads - would do the trick, attracting casual music buyers as opposed to the limited band of connoisseurs who sign up at present. Whether £5 is a sustainable price is another matter - but Napster now belongs to the American electronics retail giant Best Buy which presumably is willing to fund it for a while. The new service will also be marketed through the Carphone Warehouse chain which is now working with Best Buy.

As for We7, the chief executive Steve Purdham admits that his service is in the "investment" stage at the moment. He is a technology entrepreneur with an impressive track record, having built and then sold the security business Surf Control for a very tidy sum. He claims that what makes We7 different is that its service is simple and its business strategy ultra-cautious. So instead of making users download an application, as Spotify does, the online jukebox is available through your web browser, and rather than a classic dotcom global land-grab, We7 is focusing on the British market for now.

Mr Purdham says that's a contrast with some rivals: "What they've gone for is pure scale without building in advertising right from the beginning." By contrast, We7 users won't be able to miss the adverts: "In 30 minutes you'll be exposed to 36 ad opportunities."

Mind you, Mr Purdham admits the digital music landscape is littered with the corpses of start-ups which thought free music supported by advertising was the way ahead.

So one service aims to get users to shell out a little cash every month, another expects them to tolerate a blizzard of ads as they listen for nothing. Where does that leave Spotify? Somewhere in the middle. It has rapidly wooed millions of users with an attractive service supported by just a few adverts, which, according to most in the music business, is losing money hand over fist. But it needs to move many of them pretty rapidly to a £9.99 per month subscription, with the carrot of a mobile application and now the ability to keep some of your music on your computer. In the acerbic words of one rival,'they've executed supremely as a PR vehicle," but Spotify now needs to prove its roadworthiness as a business.

Of course, all of this is a massive bet on the behaviour of the modern music fan. For years those who've flocked to the likes of Pirate Bay and Limewire have insisted that they would be happy to use legal alternatives, if only they were both cheap and user-friendly. There are now plenty of services which fit both descriptions - but will music fans step up to the plate and make them profitable?

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