A Happier Tune for Napster

Investors bid the shares higher Tuesday after the online music service's quarterly revenue forecast beat Wall Street expectations

Napster (NAPS) continues battling for survival against tough rivals like Apple (AAPL), which dominates the online music market with iPods that aren't compatible with Napster services (see BusinessWeek.com, 5/2/06, "Napster: New Tune, Same Chorus?"). But the Los Angeles digital music company managed to beat investor expectations about its sales on Apr. 3.

Napster says it will announce financial results May 16 that show it had more than $28 million in revenue during the fourth fiscal quarter ended March 31. The consensus estimate had been for $26.6 million revenue, according to Thomson Financial.

Investors bid up the stock 6.3% to $4.41 per share in early trading on the Nasdaq Apr. 3.

CEO Chris Gorog has been pulling together deals in an effort to grow his company's subscriber base. Napster announced a plan on Jan. 12, for example, to become the exclusive music subscription provider integrated into AOL Music, replacing AOL Music Now. AOL will also promote Napster with links to the Napster service throughout AOL's free music site, AOL Music.

In mid-March, Gorog and his team integrated over 225,000 AOL Music Now paid subscribers onto the Napster service. The company says it ended the fiscal year with more than over 830,000 paid subscribers globally.

Napster has forged other partnerships recently as well. On March 26 the telecom giant AT&T Inc. (T) and Napster announced an offer that gives customers free unlimited access for one year to more than 3 million song tracks through Napster To Go, enabling consumers to access songs across multiple screens, including the PC, the wireless screen and other compatible music devices. They are effectively linking Napster To Go's music library to AT&T's wireless and broadband services.

But Gorog is not out of the woods yet. His company has already lost hundreds of millions in recent years. During the third quarter ended Dec. 31, Napster reported a $9.5 million loss, compared to $17 million lost during the same period last year.

Napster is up against not only Apple, but also others who are scrambling to make a buck on digital music. For example, the Internet giant Yahoo! (YHOO) built a music download service in partnership with the privately held MusicNet -- but on the other hand, so had AOL (see BusinessWeek.com, 9/19/06, "A Needy Napster Searches for Takers"). At least now Napster has one less rival to deal with in the online music arena.

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