Napster Considers Sale, Tie-Up

Napster, the remade version of the popular Internet music-sharing service, is in talks over a sale or possible strategic partnership, the company said Monday.

The announcement comes as a steady stream of new competitors enters the Internet music sales market, including SanDisk with partner RealNetworks, and Microsoft, with its Zune Marketplace strategy. It also comes amid a sharp downturn in user figures for Napster, which has seen its user base erode to 512,000 at the end of June, from 606,000 at the end of March.

Napster said it has hired UBS Investment Bank to assist management in the "evaluation of strategic alternatives," in response to interest from a third party in potentially acquiring or establishing a venture with the company. Napster also said it remains in a strong position to continue building its own business, with or without such a deal, highlighting its cash position of US$97 million.

The announcement sent Napster’s Nasdaq-listed stock up 12.4 percent in after-market trading, to $3.99. The company set no timetable for finalizing the evaluation, and said the talks may not result in any deals.

Formed in 1999, Napster popularized peer-to-peer music sharing on the Internet, gaining notoriety when a recording industry lawsuit ultimately shut it down and set the precedent for further legal victories over similar online services. A few years after the legal defeat, Roxio bought the rights to its name, and in late 2003 relaunched it as a legal music download store.

Napster faced stiff competition from the moment of its rebirth, mainly from Apple Computer with its popular iPods and the iTunes Music Store. Napster currently offers a free 512MB digital music player, or a 1GB one for US$50 to users who sign up for its monthly service for three months. It also started an advertising-supported music service in May that allows users to listen to more than 2 million songs at no charge, up to five times each.

The company reported a net loss of $9.8 million in the three months ending June 30, on revenue of $28.1 million.

-Dan Nystedt, IDG News Service (Taipei Bureau)

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