Napster shows revenue surge as ad-supported music attracts audience

By Simon Aughton

Posted on 3 Aug 2006 at 12:02

Napster managed to cut its losses by $10 million in the last quarter, despite a seven per cent fall in subscriber numbers.

Napster CEO Chris Gorog attributed the decline to the launch of a free service in May. However the income from advertising on the new site underpinned record revenues for the digital music business as a whole.

'Our first quarter was highlighted by record revenue and the launch of our new Napster.com advertising-supported free music service, which is off to an encouraging start as we saw an over 50 per cent increase in monthly unique visitors and ended the quarter with a run rate of 60 million page views per month,' Gorog said. 'Our new free service should lead to lower subscriber acquisition costs and improved subscriber retention while building advertising revenue.'

Gorog appeared more open to the idea of selling the company, having earlier this year scotched rumours that it was up for grabs.

'We do not have our heads in the sand regarding an M&A [merger and acquisition] transaction,' he told analysts during a conference call. 'We continue to receive a lot of interest in the company. We will always carefully weigh any valuation alternative against the opportunity and risk associated with continuing as a stand-alone company.'

For the time being, however, the company is hoping that its nascent Napster Mobile service is poised to benefit from the anticipated surge in the number of people buying music-enabled mobile phones.

'Wireless continues to be a very significant priority for Napster as music-enabled cell phones are expected to dwarf the number of MP3 players around the world over the next few years,' Gorog said. 'We look forward to both announcing agreements and launching with new top-tier wireless partners before the end of the year.'

Gorog did not mention the possible effect of the imminent release of Microsoft's Zune. Microsoft has not confirmed whether or not Zune will be compatible with downloads from music services, Napster included, which rely on its PlaysForSure DRM technology. But the general feeling is that, like iTunes and iPod, Zune will be a closed system.

Not that Gorog has been that impressed by Microsoft in the past, once describing its execution of PlaysForSure as 'less than brilliant'.