Will this be enough to fend off the barbarians at the gate? Music subscription service Napster (NSDQ: NAPS) has reported quarterly revenue of $30.7 million, a modest increase of about 5.7 percent from $29.1 million in the year-ago quarter. Losses from continuing operations slimmed $4.3 million from ($.10 per share) from $7.5 million ($.17 per share). The loss was narrower than the $.13 analysts had expected them to lose. For the coming quarter, the company expects relatively flat revenue and EPS, so there are no visions of the download store moving the needle too soon.
The headline of the release touts loudly the fact that the quarter was cash flow positive, but don’t lose your hat over this. At least in past quarters the company was able to show positive cash flow due to a delay in making royalty payments. Eventually it’s going to have to make a big one-time lump sum to erase this.
Release | Webcast (5:00 PM ET)
Conference call: Given the company’s performance, perhaps you can’t blame CEO Chris Gorog for putting some major spin on the company’s challenges and its prospects. He explained how customers always react positively when they see Napster’s subscription music service in action, but that impressed response is always: “followed quickly with the below the belt punch… does it work with my iPod?” Fair enough, it’s tough not having access to the category killer. But then he added, in reference to the company’s new DRM-free store that these issues “have been effectively eliminated.” Not really: the subscription service still won’t work on the iPod, even with the introduction of the new MP3 store.
Basically, the purpose of the MP3 store is to attract customers and drive subscription sales, as Gorog admitted. It’s kind of like how Apple (NSDQ: AAPL) uses track sales to sell iPods; that’s the point of Napster’s service, except with subs. Will it work? It will be tough, but things need to change. At this rate, Napster’s market value is approaching the value of licensing its logo for ironic T-shirts at Urban Outfitters.
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