- Reuters, Thursday, August 3, 2006 11:30 AM
Napster, the quixotic illegal file-sharing-cum-legitimate online music subscription service, continues to baffle. The company, once repudiated for letting people swap songs for free, has forged ahead
in that direction. Napster hopes a free ad-supported service will help it compete with Apple's iTunes. Well--it's not totally free. Users get to play each song five times before they have to buy. As a
result of the shift, Napster's subscriber base fell 7 percent to 512,000, which includes 4,000 university-paid subscriptions. Frustrated CEO Chris Gorog says Napster expected some subscriber churn due
to the new free site, but going forward, the company has to improve its conversion of free-to-paid subscribers. Gorog will not rule out a possible sale: "We do not have our heads in the sand regarding
an M&A (merger and acquisition) transaction," he says. "We continue to receive a lot of interest in the company." Napster reported a net loss of $9.8 million for the first quarter, compared with a
$19.9 million loss last year. Revenue rose to $28.1 million from $21 million. The Reuters report made no mention of the company's ad revenue. "Napster's still trying to find a working business model,
which is bad from an operating standpoint," says Kit Spring, analyst with Stifel Nicolaus & Co. She expects the parent company, Roxio, to explore a sale--especially because Gorog mentioned it on the
call.
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