Real Claims Market Share But Not Profits

Discussion
Sep 10, 2004
George Anderson

By George Anderson

RealNetworks says its loss-leader strategy helped it double its market share in the downloadable music category.

The company sold singles at 49 cents a piece during a three-week sale, which ended yesterday. It claims to have sold 3 million songs over the three-week period and, in the process, its share of market went from 10 percent to 20 percent.

Inside Digital Media estimates Real was selling about 200,000 songs a week before it cut prices.

According to RealNetworks, it gained share at the expense of the market leader, Apple Computer, which saw its share of category sales drop the same 10 percent during the sale. Apple has publicly disputed Real’s claim saying its sales continued to grow over the three-week time frame.

At 49 cents a song, RealNetworks lost approximately 26 cents on each sale. The company has said its wholesale cost is about 75 cents a song. It intends to offer the top 10 songs every week at the same 49 cents price point.

“This is no different from how physical music stores work,” Real’s chief executive, Rob Glaser, told the Dow Jones news service. They “offer loss leaders to get people in.”

Forrester Research analyst Josh Bernoff sees benefit to Real’s initial sale but wonders if the company’s loss-leading is a sustainable strategy. “If the other songs were selling for $1.09 apiece, maybe this would make sense,” he said. “But the top 10 is what most people buy. This is a prescription for a whole operation to keep losing money weekly.”

Moderator’s Comment: Is RealNetwork’s loss-leader pricing for music downloads a sustainable strategy?

It might be if the company was selling iPods, but it’s not.

If any company was going to lowball its way to market share, it would be Walmart.com. It has the resources to sustain the strategy.
George Anderson – Moderator

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