Napster has a very bad day

napster Talk about having a really bad day! Yahoo’s entry into the music business pummeled Napster – its stock skidded 30% for the day. What hasn’t helped the matters is that despite rising revenues, Napster is losing money faster than Jason Giambi is losing his bat speed. Good news – the total subscriber jumped by 140,000 to 410,000 during the quarter. Impressive, right? Not Exactly!

Napster has always made it a point to highlight its subscriber base, so I did a very unscientific back-of-the-envenlope analysis of the current results. Given that company constantly harps about its subscribers, I decided to put its earnings under the subscriber-optimized microscope.

In the Dec 31,2004 quarter, each subscriber brought in about $15 a month, but also lost the company about $15.8 a month. In the March 31, 2005 quarter each subscriber brought in $14.15 a month, and also lost the company $19.60 a month. That’s about $4 per subscriber. In other words, the more subscribers it signs, the more money it will lose, at least in the near term.

I saw some of this kind of loss-taking bravado during the last bubble, and that’s why I bring it up. Good thing is that Napster has a lot of money, they are going to need it and spend it like crazy to stave off competition from the likes of Yahoo, which has built in promotional channel.

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