Napster’s Quarterly Report: Losses Narrow, Subscribers Down

Napster narrowed its losses during the most recent quarter, though subscribers declined. The company posted revenues of $25.5 million for its fiscal, second quarter ending September 30th, an increase of 9 percent over year-ago figures. That helped to alleviate quarterly losses, which shrunk 33.8 percent to $9.0 million, or $0.21 per basic and diluted share.

In May of this year, Napster unveiled its web-based, advertiser-supported Napster.com, which allows three free streams of any track in the catalog. The latest quarter is the first full period for the offering, and Napster CEO Chris Gorog pointed to strong unique visitor gains.

Regardless of the early growth, the web-based experiment could be cannibalizing paid subscribers. Since its reincarnation in October 2003, the “new” Napster has steadily gained subscribers. But the launch of Napster.com has changed that, and the company pointed to a decline over the summer. “Following the launch of the free music service, paid subscribers (excluding university subscribers) dropped to 487,000 at September 30, 2006, while churn reached an all-time low,” the company noted in a recent SEC filing. “This decrease in paid subscribers is attributed in part to prospective new customers trying the free music service before subscribing to our premium music services.”

Now, the larger question is whether those trial consumers will ultimately make the switch to paying subscribers. At the end of the quarter, Napster counted $90.3 million in cash, cash equivalents and short-term investments, a decline of $13.9 million from its fiscal fourth quarter, ending March 31, 2006.

Author: FutureMusic

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