“RealNetworks Inc. is ending a temporary promotion that slashed the price of its downloadable songs to 49 cents, but bargain hunters will still be able to find some deals at its online music store. The company said Wednesday that it will continue to offer 10 of the most popular songs on its Web site at the cheaper price, in a promotion with music magazine Rolling Stone,” The Associated Press reports.
“RealNetworks also said Wednesday that it sold 3 million tracks over three weeks of the 49-cent promotion, almost double its normal sales,” AP reports. “Dan Sheeran, a senior vice president with the company, said the cost of the money-losing promotion was in line with expectations, but he couldn’t be more specific.”
Full article here.
MacDailyNews Take: 3 million songs in three weeks is clearly a failure. For comparison, at 99-cents per song, “the iTunes Music Store is currently selling over 16 million songs per month (a rate of 200 million songs per year),” Apple Computer said in a statement on September 2, 2004. So, Apple sold over 12 million songs in three weeks, or four times Real’s total songs sold during the sale, all while charging more than twice Real’s amount per song.
Cool. Swell. Neat. This is all I say!
Poor old Real. They couldn’t dent Apple’s dominance, and now here comes Microsoft to steal away any customers they had managed to get.
Will we see Rob Glaser’s CV on Jobserve?
In this case, “the glass is half-empty” is appropriate (rather then “half-full”). Talk about spin!
10 of the most popular songs!! Sad, Sad, Sad. Was “A Bridge over Troubled Water ” one of them? Bye, Bye REAL.
I wonder what Thurridiott will say about this…
Thurrott’s actually made a very valid and very good point about Real’s Music store in reaction to the end of this promotion:
RealNetworks Promotion Garners Sales of Over Three Million Songs
Wall Street Journal: “RealNetworks Inc. plans to announce today that it sold over three million songs online as part of a cut-rate promotion that is now ending. The Seattle-based company, targeting market leader Apple Computer Inc., charged 49 cents a song and $4.99 an album for music sold tunes via its RealPlayer Music Store over a period of about three weeks. That compares with a standard price of 99 cents a song and $9.99 an album for Apple’s iTunes Music Store and most other sites. ‘It was a very economical and efficient way to introduce consumers to our service,’ said Rob Glaser, chief executive officer of RealNetworks. The company estimates that it gained market share against Apple as a result of the music sale. An Apple spokeswoman was not immediately available for comment. Mr. Glaser said the company lost about 25 cents for each song it sold to people who don’t already pay for a separate subscription offering.”
Wait a second. They reduced the price 50 cents and only lost 25 cents per song? That means Real actually makes a whopping 25 cents per song at the normal price. Since Apple breaks even on its music service, that suggests Real is capable of not just making a lot of money from its a la carte service, but that it can make a lot more money than Apple, even if it sells far fewer songs. I guess that kills the “you can’t make money on online music sales” argument, which, naturally, was based solely on Apple’s inability to do anything efficiently. This further suggests that other clueless assumptions about Napster and other music stores are equally bogus. Interesting.
Oh, and the sale is effectively over…
While I don’t think for a second that Real will usurp the iTMS, the point he makes about the profitability is absolutely spot on. Credit where it’s due. I frequently find the man baffling just like you do, but he’s occcasionally spot on with his analysis.
All Microsoft will do is take away some firepower from Real. Kind of like the way a third party takes away from the minority party while the majority party gets stronger in a political campaign.
losing .25 per song does not necessarily mean the remaining loss would become profit at .99.
Every business calculates a cost per customer figure per sale (or volume) in this case Real is probably factoring in some of that loss as marketing and pr costs per sale. When it is functioning in non-pr mode the profit margin will slim as volume decreases. This does not include any other (temporary) agreements Real might have made with the labels to share the losses associated with the promotion.
But what would Mr. Glaser’s CV say?
Can a decade of doughnut eating be considered a real job?
Are many employers looking for whiny blowhards with a penchant for hypocrisy?
Then again, Paul Thurrott found a job.
thequicksilver:
Please accept the fact that I’m smiling whilst i type this, but – given that Paul Turdrot can’t report on any of technology issue objectively � how can anyone take his ‘back of an envelope’ approach to economics seriously.
Seriously, the guy is a failure on so many levels as a journalist that if he told me it was midnight and it was dark outside, I’d go and check.
I’m certainly not cheering for Real, but if they could sustain 1/4 of the business of iTunes, that would be a great business. The real issue isn’t how many sales they made during the promotion, but how many new customers they can sustain. Were these actually new customers or just former customers buying twice as much during the promotion?
thequicksilver: Thurrott’s problem is that he takes the two companies profit statements at face value, uncritically. It’s in Real’s interest to minimize their perceived losses, so they may mean that they pay 75 cents per song to the labels and thus only lost 25 cents, but they ignore their internal costs in making the statement of losses. Meanwhile, it’s in Apple’s interest to minimize perceived profits: it discourages competitors and keeps investor expectations low so that Apple can comfortably reinvest profits in expanding the business. So Apple would be best off calling it break-even, or close, by factoring in their internal costs.
MCCFR said “Can a decade of doughnut eating be considered a real job?”
LOL. Maybe he could be the waste disposal at Krispy Kreme.
Thurrot is truly a financial idot. Every business has both fixed and variable costs. When you discuss the “profit” you make on the sale of one item you are actually talking about the gross sales margin that contributes overall profit. Fixed costs always come into play and will change on a per unit basis as volume changes but not really in total. Thurrot’s comments total ignore what profitablility really means. If this had been a good deal for Real, it would not be discontinued so quickly. Real may be making a gross margin per song of 25 cents when selling at 99, but this could still ending being a break even or money losing situation due to all the fixed costs – just like Steve Jobs said.
me:
YOU are spot on, not Throwout.
Darn. For a moment I thought the headline said Real was closing.
the money in the promotion was getting people to sign on to a subscription service instead of the a la carte …I’m sure they landed a LOT of new subscriptions…that’s MONTHLY income…
Hey, thequicksilver, while you have a point you forget that apple announced that it had broken even back around the time when it had sold only 20 million songs total. That means that the fixed costs associated with software development and negotiations fees, and server/ bandwidth allocation were defrayed nearly a year ago. I would be honestly suprised if apple was not making money on the store. Also there is no possible way that real secured better liscensing contracts with the record labels considering how much time apple spent on the negotiations (rumors of them popped up even before the iPod was released) and considering that real wen from scratch to having a store in a couple of months, Thee is no way real can have better margins than the company who literally created the 99cent market where there was none before. The sheer mechanics of negotiating with record label buerocracy make it obvious
Is my math right… did Real lose .25� per song sold… and 3 million songs sold? that = 750,000.00 right… 3/4 of a million.
The sound you hear it the toilet flushing and the turd known as Real circling the bowl… the more noise this company makes…. the closer the are to the bottom of the bowl.
Not to say anything positive about Real, but the success or failure of their 49 cent sale is more if they got more
subscribers than usual during that period. Other services are pushing subscriptions because it is more profitable
than downloads. Since Glaser didn’t mention it, I suspect they didn’t.
If this is true and Apple only makes like 10 cents and Real makes 25 cents per song, you really gotta wonder what Apple is spending the extra 15 cents on.
MARKETING! Surely you’ve seen the dancing silhouettes?
Anyhow, as “me” pointed out, there’s fixed versus variable costs that thrurot forgot to think about. Sure, I’m surprised that Glaser’s operational costs are 75cents, 65 to the music companies, and 10 cents operational. However, they could be putting alot of costs into the fixed category. Just look at their quarterly losses. There must be a big number in that fixed cost category.
thequicksilver,
Deeply, deeply flawed analysis by Thurrott. RealNetworks admitting to a 25-cent loss on each song in no way suggests that they were making a 25-cent profit in the first place, which is highly unlikely, given the onerous terms the major labels demand. They could have been making 10 cents (or less), and the cost of the marketing debacle worked out to 25 cents per song sold. Until we hear verifiable numbers, this is just spin to keep the market from punishing them. Thurrott is talking out of his nether orifice, as usual. Please don’t pay his salary by linking to his rubbish.
Another MDN story indicates that RealNetworks lost $2 million on the promotion. That’s 67 cents per song, or nearly triple Thurrott’s figure. And using Thurrott’s own back-of-the-envelope cost accounting methods, if you added 50 cents per song back onto the revenue, they’d still have lost half a million bucks.
And Apple isn’t capable of doing anything efficiently?
Pull the other one, Paul. If you can find it.
Yet another false fact in Thurrot’s article is the myth that iTMS breaks even. If he bothered to check, iTMS is a profitable business. It’s not a loss leader nor supported by iPod’s cash.
As for Real, I guess congratulations is in order. Their promotion is very successful that they manage to lose $2M during the period. The next goal is to lose $10M.
How does 3 mil songs equal to 10% market share? Is this new math or was someone high on doughnut holes again?