updated 02:25 pm EST, Wed January 18, 2006
Napster\'s future uncertain
Napster--one of Apple's primary competitors within the digital music industry--is facing an uncertain future, according to one report, despite one analyst saying that subscriptions have increased. A report surfaced yesterday from Digital Music News suggesting that the subscription provider is suffering from "a dire company situation." Reports from sources inside the company apparently point to "a substantial round of layoffs," as well as a fire sale or company liquidation. Napster's CEO disputed the claims, and the firm recently announced that its premium paid subscription base breached the half million mark. Meanwhile, Piper Jaffray senior analyst Gene Munster yesterday said he is confident Napster's subscriptions will bounce back due to the company's increased marketing efforts during the month of December, 2005.
Napster, expected to report its third-quarter results on February 8th, reported a net loss last quarter of $13.6 million on revenue of $23.4 million, according to a report from ZDNet News. The company in November boasted 448,000 subscribers, and has since added at least 52,000 to that sum. Napster also said 50,000 college students subscribe to the service through its university program.
"Doubling our subscribers over the last 12 months demonstrates the mass market potential of our music subscription model and the powerful appeal of Napster to music fans who want it all," said Napster CEO Chris Gorog. "With a track record of robust growth, exciting new developments in the pipeline and over $100 million on our balance sheet, we are extremely excited about the future of Napster."
New subscriptions to slow
Munster said that Napster had slightly more favorable attach rates during the seasonally strong holiday quarter than the company had expected; however, it expects that new subscriptions will decline in the March quarter, given lower ad spending related to the Napster music service. The company said it was expecting a 41 percent reduction in sales and marketing related to the Napster service.
"We expect investors will begin to place less emphasis on quarterly sub adds and more emphasis on Napster's new business model (Napster.com) and what it will mean for the company over the next 4-8 quarters. While new subscription estimates will continue to decline, we believe investor focus will shift to Napster's new business model."
New business model to focus on Napster.com
Munster believes the initiative will be an advertisement-based model that will be launched in phases between early spring and mid-year. While details are still unknown, Napster believes that this new business model has the potential to be bigger than the existing online music service, according to the firm's research note to clients.
While "cash flow" is a concern, Piper does not expect a significant spike in marketing expenses related to the new program. Napster is already in the process of getting advertisers for the new Napster.com initiative and the company has hired a new VP of sales. Estimates by the firm show that Napster is expected to end the December quarter with $2.34 per share in cash and that Napster will look to slow down the cash burn rate by bringing spending on sales and marketing down following the holiday quarter.