Napster Sale A Possibility

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August 03, 2006 (4:36 PM EDT)

By Antone Gonsalves , TechWeb Technology News

Napster, which recently introduced an ad-supported free music subscription service to combat a drop in subscribers, said Thursday that it wouldn't rule out a sale of the company.

The company that jumpstarted the online music market with a file-sharing network that was later shutdown by the record industry reported Wednesday that its subscriber base fell by 7 percent in the first fiscal quarter as the company introduced the free service.

"We continue to receive a lot of interest in the company and would like to assure our investors that we will always carefully weigh any value creation alternatives against the opportunity and risk associated with continuing as a stand-alone company," Napster Chief Executive Chris Gorog said in a statement emailed Thursday. "We believe we have created substantial value that is not reflected in our share price and it is our number one priority to release that value through the execution of our business plan, or by aligning with a strategic partner which we will always consider with seriousness as we represent our shareholders."

A Napster spokeswoman said the company has considered a string of offers.

"We are always approached. That's always the case and continues to be the case," spokeswoman Dana Harris said. "We absolutely evaluate all realistic offers."

The Los Angeles-based company reported that revenues for the quarter ended June 30 rose 34 percent over the same period a year ago to $28.1 million. Napster reduced its net losses in the quarter to $9.8 million from $19.9 million a year ago.

The company expected its subscriber base to grow in the second half of the fiscal year as a result of the free service, which the company hopes to use as a springboard for adding subscribers to its paid service, which offers more features. As of June 30, Napster had a total of 512,000 paying subscribers.

In trying to grow its business, Napster is focused on delivering music to mobile phones. An increasing number of advanced cellular phones are shipping with music players. Napster plans to roll out its mobile service next week in the Southeastern United States through a partnership with SunCom Wireless.

The original Napster rocked the music world with the launch of its file-sharing service, which was shutdown in 2001 by a court ruling that found in favor of record companies that claimed Napster provided an illegal channel for distributing music without the permission of copyright holders. The company was later bought by Roxio, which launched a legal service.

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