Our take...
This announcement needs to be seen in the context of Napster's dwindling subscriber base. According to preliminary results, the company has experienced a net year on year decline of 70,000 in subscribers in the twelve months ending on 31 March 2008. Screen Digest believes that the decline in total subscribers masks a more significant drop in Napster's online services as the company introduced a number of mobile subscription offers in 2007.

In addition, premium rental subscriptions run the risk of becoming increasingly obsolete as services which offer music free at the point of delivery proliferate. Nokia's Comes With Music bundled subscription is set to launch later this year. Spiral Frog has been offering music free to the end consumer since September 2007 (the service is essentially an ad-funded rental 'subscription'). However, catalogue size and diversity are quite key to the success of subscription services. At the moment Napster has more to offer than Nokia, which has signed only two Majors (Universal Music Group (UMG) and SonyBMG), and Spiral Frog (0.8m track catalogue from UMG, Sony BMG, EMI and independent labels).

By converting its entire catalogue to DRM-free format Napster can now reach users of music devices incompatible with Windows DRM (including Apple iPod and iPhone). As research by NPD indicates Amazon managed to launch into this market without cannibalizing iTunes Store's share by augmenting the market as a whole. Screen Digest believes that if Napster manages to repeat this pattern, the move should help the company to temporarily upkeep the revenue stream and buy it some time to revise the fundamentals of its business model that needs to be reworked if Napster is to stay in business in the long run.