Napster Slims Losses; Subscribers Also Slimming

Napster managed to slim its losses during the most recent quarter, though nagging questions remain.

During the three-month period ending March 31st, the company boosted revenues 6 percent to $30.8 million.  Napster is still swimming in the red, though quarterly losses were nearly halved to $4.3 million, from $8.5 million one year ago.

On an annual basis, leading indicators also showed growth.  For the fiscal year, sales moved upward 17 percent to $111.1 million, while net losses narrowed from $36.5 million to a more manageable $16.5 million.

All of that represents a shift in the right direction, though deeper concerns surround the viability of Napster’s core, subscription-based platform.  The company finished the period with 760,000 subscribers, a mild increase over a last-quarter tally of 743,000.  But compared to a year-ago total of 830,000, the current result represents a sizable attrition.

The earnings announcement closely follows a shift towards DRM-free downloads.  But the move, announced Tuesday, relaxes restrictions on the a-la-carte, paid download section of the service, not the bread-and-butter subscription offering.  And it remains questionable whether the presence of downloadable MP3s will drive traffic towards the rental sandbox.

In theory, subscription-based approaches remain enticing, though Napster has struggled to attract a critical mass of consumers.  The problems are varied, though most modern-day music fans prefer ownership of discrete downloads, whether ripped, stolen, or purchased.  Additionally, Napster’s rented content is not compatible with the iPod, a critical problem.  Meanwhile, the well-oiled iTunes+iPod ecosystem remains an unforgiving opponent, while other Napster-compatible devices continue to struggle.

In light of those challenges, Wall Street remains mostly uninterested.  On NASDAQ, shares of NAPS landed at $1.69 on Wednesday, a distressed valuation that has some shareholders agitated.   That includes Perry H. Rod, an independent investor now seeking some board-level changes, including the installation of himself and various colleagues.  “In our view, the current Board, while impressive in experience, has not been effective in inspiring the progress we believe is required for success,” Rod asserted in a recent filing.