February 7, 2008

Napster posts smaller 3Q deficit

LOS ANGELES - With a 15 percent jump in revenue from subscriptions, online music retailer Napster Inc. said Wednesday it spent less and lost much less in its third quarter than a year earlier.

For the three months ended Dec. 31, the company posted a net loss of $2.8 million, or 6 cents per share, compared with a net loss of $9.5 million, or 22 cents per share, in the same period a year earlier.

The results were better than analysts surveyed by Thomson Financial expected: Analysts predicted a loss of 12 cents per share on revenue of $33.07 million.

Los Angeles-based Napster's core business is selling access to a monthly music subscription service that lets users download copy-protected tracks and transfer them to certain portable devices, including mobile phones.

The company also runs a Web site where visitors can stream tracks on a limited basis and purchase downloads.

Last month, Napster said it would begin selling music downloads as unprotected MP3 files in the spring.

Revenue totaled $32.8 million, up 15 percent from $28.4 million in the year-ago quarter, with the rise driven primarily by growth in subscription and wireless music sales, the company said.

Excluding a nonrecurring benefit from prepaid download cards that expired without being redeemed, revenue for the latest quarter was $30 million, the company said.

Napster said it closed the quarter with about 743,000 subscribers, a decline of less than 1 percent from the second quarter.

During a call with Wall Street analysts, Napster chairman and chief executive Chris Gorog touted the company's record quarterly revenue and its focus on holding back expenses.

Total operating expenses fell more than 26 percent to $13.2 million from a little more than $18 million a year earlier. Napster also reduced its marketing costs during the quarter by 85 percent.

It closed the quarter with $69.3 million in cash and equivalents, and it forecast revenue in the fourth quarter in the range of $29 million to $31 million, while analysts expect revenue of $35.2 million.

Gorog said Napster is finalizing licensing agreements with record companies and plans to debut the MP3 downloads option in its fiscal first quarter.

"We predicted some time ago that by 2008 there would be a critical mass of top-tier content available as MP3s, and it's clear now that will happen," Gorog said. "We believe this shift will be a powerful growth driver for us."

Napster has been counting on the mobile music market to grow, but fewer than expected Napster-compatible handsets launched during the quarter, Gorog said.

"Our early traction in mobile has gotten off to a slower start than we would have liked, and this has affected our (fourth-quarter) estimates," he said.

The company expects its over-the-air mobile download service soon will be compatible with a substantial number of existing and new phones.

Earlier this week, Napster said it expanded its mobile music service into Chile through wireless carrier Entel PCS. Napster recently struck a similar deal with a wireless carrier in Italy.

For the nine months through December, Napster's net loss was $12.2 million, compared with a net loss of $28.3 million in the nine months ended Dec. 31, 2006.

Revenue in the same period rose to $96.7 million from $81.9 million in the prior-year period.

Napster shares fell 9 cents, or about 5 percent, to $1.73. After the financial results were released, shares climbed 3 cents in after-hours trading.

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