Blog Post

Napster/Roxio’s Conference Call

(Conference call link here)

Chris Gorog, CEO, Roxio: “Selling the software business will help us 100 percent focus on digital music…we will have net cash balance in excess of $100 million after this deal closes. This makes us a pure-play in digital music business. We will complete the transaction in October…

We’re happy with Q2: Napster’s margins increased, reflecting a favorable increase in subscription revenues.

Nand Gangwani, CFO: Blended gross margins for both s/w division and Napster were 61 percent compared to 65 percent in the prior quarter. Gross margin for Napster improved to 18 percent compared with 14 percent sequentially; if you exclude the hardware/MP3 and charges, gross margins for Napster were about 25 percent. Headcount: 98 for Napster, at end of Q2.

For now, download margins are 10 percent; subscription margins are 40 percent; aggregate margins: 30 percent. Sales and marketing expense for the upcoming quarter: $10 million.

Gorog: We believe in subscription services and it has higher margins. There’s a lot of difference between Napster and a download store like iTunes…

One of our biggest challeges: how to push subscriptions? This is why we entered into a deal with BestBuy…under the terms, the BestBuy sales force will be demonstrating the Napster service in-store.

Napster UK is off to a strong start…we expect this effort to make strong contribution to future results.

The recent dogfight between RealNetworks Apple validates our belief in the ubiquitous Windows Media platform…we have a plethora of devices coming out which will support MSFT’s Janus DRM portable subscription scheme. We are the first company to be beta testing Janus, and will roll out the service and compatible players this fall.

On Janus launch: Gorog: We do have agreements with all five major labels for portable subscription…rolling it out this fall as schedule. We expect Janus to be supported by at least by a handful of device players. The key for us is device players launching these MP3 players for this fall and later..
We are going to turn or marketing on Janus after we have a critical mass…it is unclear whether we will turn on the marketing muscle around Christmas or after…

Janus pricing: it may be a sub-$20 price range. We are still focus-grouping on the price senstivity…it will be between $10 and $20…

Microsoft: We are in extensive discussions with MSFT…it is planning to spend a great deal on the relaunch of its technologies: operating system, Windows Media Player and the portable music service. We are trying to understand how we can participate in that…

Canada: Expectation for Canada were low, and we don’t have the appropriate amount of content for it. We only have 300,000 songs. Music publisher agreements are more difficult there…

Universities: University income right now is very small…it is almost immaterial. We offer the universities seat licenses at heavily discounted rates. Happily the labels have co-operated with us till now…The bigger things for us is becoming the brand for the university students…