RealPlayer site to keep discounting hits at a loss
By Jefferson Graham
RealNetworks, which kicked off the Internet's first digital music price war by selling songs at half price, says it will continue selling top-10 singles as 49-cent loss leaders.
Real makes the popular RealPlayer music and video software. The company says it sold 3 million songs at its online music store during the three-week sale, doubling market share to 20 percent from 10 percent, taking a bite of Apple's 70 percent share, which it says fell to 60 percent.
Apple disputed that, saying it saw no drop in market share during the past three weeks and its sales grew each week.
Real gained customers, but it will lose $2 million from the promotion, said market tracker Forrester Research.
Real now says it will offer a weekly top-10 singles selection for 49 cents. Current artists include the Beastie Boys, Maroon 5 and Ray Charles. Regular-priced songs are 99 cents.
"This is no different from how physical music stores work," said Real CEO Rob Glaser. They "offer loss leaders to get people in."
Real's wholesale costs are about 75 cents a song.
"If the other songs were selling for $1.09 apiece, maybe this would make sense," said Forrester analyst Josh Bernoff. "But the top 10 is what most people buy. This is a prescription for a whole operation to keep losing money weekly."
Real hasn't been profitable for several years. It lost $21.5 million in 2003 and $4.6 million in the second quarter of this year.
On the plus side, Bernoff said, Real's promotion broke it away from competitors such as Napster and Musicmatch to be the clear No. 2 download site after Apple.
Real's campaign began two weeks before rival Microsoft launched its music store on Sept. 2, a test site.
"Real wasn't on the map before, and now they are," Bernoff said.
Glaser said the finances would work out in the long term, as discounted songs are a cheap way to build Real's base. "This was the biggest promotion we've ever had. Sales went up six- or sevenfold," he said.
In launching the promotion, Real set its sights on Apple, which has sold about 125 million songs since April 2003.
Real introduced a technology, Harmony, that enables purchased songs to be transferred to many portable devices, including Apple's popular iPod. Previously, the only way to get songs onto the iPod easily was by buying them at Apple's iTunes Music Store.
Real was selling about 200,000 songs a week before the sale started, according to research firm Inside Digital Media.