Subscription strategy offers 33% growth

A focus on subscriptions paid off for Napster in the quarter ended Sept. 30, as it reported 33% growth in online music revenue compared to the previous quarter.

In its fiscal second quarter report, parent company Roxio said that Napster brought in $9.3 million. Overall revenue growth for the division, which also includes some digital music player sales, was up 18%.

Net loss for the company, which also sells digital media software, was $15.3 million, up 30% from a year ago.

Roxio is planning to sell its software assets to competitor Sonic Solutions for $80 million by the end of its fiscal year March 31. At that point, company will change its name to Napster and focus solely on digital music.

While competitor iTunes has dominated the digital music market with a la carte downloads for 99¢, Napster is focusing primarily on subscriptions: Users pay $9.95 per month — or $14.95 a month with a portable option — to listen to unlimited music. Subscriptions have not yet caught on with the public, but deliver significantly higher margins.

Napster said subscription revs accounted for 73% of its total music revenue in the second quarter, indicating that it is quickly shifting its business away from the pay-per-download option.

Hoping to further the offering’s appeal, Napster also announced Wednesday that it is working with AT&T Wireless to make its portable subscription service available on a new mobile phone that can store small amounts of music.

Company’s expecting Napster revenue to grow substantially in the current quarter, estimating it will grow 18% to $11 million. For the fiscal year ending March 31, Roxio upped Napster revenue guidance to between $35 million and $40 million. It previously estimated the musicstore would bring in $30 million-$35 million.

Napster would only have to keep revenue constant in the winter to reach the high end of its new goal.

It’s still lagging far behind Apple, however. Company’s iTunes Music Store is selling 4 million 99¢ downloads per week, which makes for around $50 million per quarter in revenue.

Roxio shares fell 2% Wednesday before earnings were announced, closing at $6.38.

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