Napster Loss Narrows in 2Q

LOS ANGELES — Napster Inc. said Thursday its second-quarter loss narrowed from a year ago as the online music service posted higher revenue from subscriptions and mobile music sales despite a decline in paid subscribers.

The company reported a net loss of $5.1 million, or 12 cents per share, for the fiscal quarter ended Sept. 30. During the same period a year ago, it lost $9 million, or 21 cents per share.

The loss was less than the 15 cents per share on sales of $30.5 million that analysts surveyed by Thomson Financial expected.

Net revenue for the most recent quarter was $31.6 million, up 24 percent from $25.5 million in the year-ago period.

The Los Angeles-based company's revenue growth during the quarter came primarily from subscription and mobile music sales, but also included $700,000 from a nonrecurring trademark license.

"We are pleased that we have been successful at much more efficient cash management, generating positive cash flow now for two successive quarters, while at the same time substantially improving our product lineup, growing our partner base and continuing to enhance our market position," Chris Gorog, Napster's chairman and chief executive officer, said during a conference call with Wall Street analysts.

Napster said it ended the quarter with about 750,000 paid subscribers, down from about 770,000 in the first quarter.

The company said it had expected the drop in subscriber rolls, given "historical quarterly patterns."

Napster ended the quarter with $68.4 million in cash or cash equivalents, up $1.3 million from the first quarter.

The company projected it would post a net loss of about $5 million, or 12 cents per share, in the third quarter.

Management said it expects revenue for the third quarter to increase to about $33 million, driven largely by its sales of mobile music. It also forecast the company will see positive cash flow for its fiscal year.

During the quarter, the company launched a Web-based version of its online music service that allows subscribers to listen to audio streams without having to download and install Napster software on their computers.

The company also boosted its mobile music footprint, signing a deal with AT&T Inc. to deliver music wirelessly to mobile phone users. That service, which offers songs for $1.99 each, or $7.49 for five per month, launches later this month.

"We believe this new product line with AT&T of over-the-air track-pack subscriptions will make important contributions to Napster's growth over the coming year," Gorog said.

Still, management cautioned that the company's growth in mobile music will depend on how quickly its partner wireless carriers roll out handsets capable of supporting wireless and side-loaded digital music files.

For the first six months of the company's fiscal year 2008, Napster's loss narrowed to $9.3 million, compared with a loss of $18.8 million a year earlier. Revenue rose to $63.8 million from $53.5 million in the year-ago period.

Ahead of the earnings report, Napster shares rose 11 cents, or 3.4 percent, to close at $3.36. They lost 12 cents in after-hours trading.

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On the Net:

Napster Inc.: http://www.napster.com

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