Napster Launches Free Music Site

Users can now sample entire songs before they download.
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Napster

(NAPS)

launched a free Web-based music service to its existing subscription and download service on Monday, hoping to lure more customers into the Napster fold.

Analysts applauded the move, although shares of the company were recently up only 1.1%, adding a nickel to $4.68 on Monday, changing hands in busier-than-usual trading. Earlier Monday, the stock was as high as $5.10.

Napster.com visitors can now listen to full songs from Napster's 2 million songs for free, five times, before they are prompted to buy the single download or sign up for the paid subscription service. Listeners don't have to download a separate player to use the free ad-supported site.

Music fans can also share songs by email or post them to blogs. A yet-to-be launched music archive, the Narchive, is also in the works, where people can contribute anecdotes and photos about individual artists and bands.

The paid Napster service is unchanged. For unlimited listening, Napster subscribers pay $9.95 a month, or $14.95 a month for the ability to move songs to a portable music player, as long as the subscriber continues to pay the fee. Individual, permanent downloads are 99 cents.

"One of the new site's most compelling features is the ability to share/link music (via blogs or email) on a peer-to-peer basis, in turn giving the company a viral way to promote its brand and drive incremental traffic to its site," ThinkEquity Partners analyst Darren Aftahi wrote in a Monday note. "In our view, this new strategy should translate into incremental ad-based revenue and a cheaper means to upsell the company's subscription music service."

Aftahi reiterated his buy rating on the stock and $7 price target. ThinkEquity makes a market in Napster.

"We believe this is the beginning of a Napster.com that will evolve into a music 'community site,' where listeners will can start by hearing songs for free, make recommendations and post reviews, link websites to Napster.com tracks and, if looking for the ability to take the music with them or own the music, sign up for the Napster music service and portable subscription," Piper Jaffray analyst Gene Munster wrote in a client note, maintaining his outperform rating on the stock. Piper Jaffray does and seeks to do business with the companies it covers.

One industry analyst said it is too early to say whether Napster.com will entice music fans to sign up for the service, and chip away at

Apple

(AAPL) - Get Report

's dominance of the online music business.

"As a tactic, I think it's a good one," said Mike McGuire, a vice president at Gartner. Analysts at Gartner don't own stock in the companies they cover.

The song-linking feature "is a good way to introduce (other people) to the service," McGuire said. "Getting them to actually cross the chasm to paying $9.95 or $14.95 a month -- it's unknown about how well that is going to work. They also have to get the across the value of a subscription service."

McGuire also said Apple has a big advantage with its wildly popular iPod, which links up seamlessly with the iTunes Music Store.

Song-linking is not a new idea. Several years ago, Seattle's Shared Media Licensing developed a similar application, called Weed, that permitted users to listen to full songs three times before purchase and subsequently share the music with others. If friends buy a track, the person who sent the song also gets a cut of the sale.

On April 6, Napster

updated its revenue guidance after boosting subscriptions and said its loss for the quarter would be less than anticipated. Napster will announce its fourth-quarter results on May 17 after the market closes.