| Napster is coming back, this time as a paid music service in partnership with two of the record labels that fought to shut it down, according to a deal announced on Monday,
In an ironic coda to the Napster saga, CD-burning software maker Roxio Inc. ROXI.O , said it had bought Pressplay, a struggling online music service launched by Vivendi Universal V.N and Sony Corp. 6758.T , for about $39.5 million in cash and stock.
The deal combines the Napster brand with assets of two of the record labels that forced Napster's closure in July 2001 through lawsuits claiming that the popular file-sharing network aided Internet piracy.
Roxio bought the rights to Napster's name and technology at a bankruptcy auction last year for just over $5 million.
Analysts said the deal pointed to more consolidation in online music, where commercial services have had only mixed success in the nearly two years since Napster was shut down.
Another subscription service, Listen.com, was recently sold to RealNetworks Inc. RNWK.O , while independent service FullAudio denied rumors on Monday it was shopping for a buyer.
"The market's going through consolidation because these services have been around for a couple of years, burning cash and not generating much revenues from subscribers or advertising," said PJ McNealy, analyst with GartnerG2.
The one standout success in online music has been the service launched by Apple Computer Inc. AAPL.O , which sold more than 2 million songs at 99 cents each in just over two weeks, easily topping the traffic on label-sanction services such as Pressplay and MusicNet, according to analysts.
The service, accessible only on Apple computers, is a pay-per-download model that does not require users to pay a monthly subscription, unlike other services.
Chris Gorog, Roxio's chief executive, said the company was evaluating both subscription and pay-as-you-download models for its upcoming Napster-branded service, expected to be launched before Roxio's fiscal year ends in March 2004.
Roxio said it bought Pressplay's technology and catalog rights with all five major music labels for $12.5 million cash and about 3.9 million shares. The $39.5 million purchase price excluded about $1 million in transaction costs.
Roxio Chief Financial Officer Elliot Carpenter said the company would spend about $20 million to relaunch Napster and cautioned that it would lose money until the service was adopted widely. Roxio said it will offer a more detailed outlook when it reports earnings on May 21.
"Napster is the most prominent brand in online music. It's a massive competitive advantage," Gorog told Reuters.
Larry Kenswil, president of Universal Music Group's eLabs, agreed. "We thought this deal would bring a lot more subscribers to Pressplay a lot quicker because of the branding," he said.
But others questioned whether consumers would be willing to pay for Napster, a name synonymous with free music for many.
"I think Roxio's plans to integrate a service like Pressplay is a great move, but it will still be a huge challenge to rehabilitate the Napster brand to consumers who largely equate with it being free," McNealy said.
Under the terms of the deal, Sony Music and Universal Music each have the right to earn up to $6.25 million if the Napster service generates positive cash flow, and both companies will have a representative on Roxio's board.
In a March filing with the Securities and Exchange Commission, Universal said it had lost $30 million on Pressplay.
Source: Reuters | |
