Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser
Posted on: Tuesday, May 20, 2003

Napster owner buys online music service

By May Wong
Associated Press

SAN JOSE, Calif. — Software maker Roxio said yesterday it has acquired for about $40 million the online music service Pressplay, a venture jointly owned by Universal Music Group and Sony Music Entertainment.

Roxio, best known for its CD-burning software, owns the Napster brand and plans to use Pressplay as the foundation for a new online music service under the name that set Internet music file-swapping in motion. "This is Napster's second coming," said Phil Leigh, analyst with Raymond James & Associates. "The record labels crucified him, and now he's going to come back and be their savior."

The new service will "retain the overall feel and vibe of Napster," said Chris Gorog, Roxio's chairman and chief executive. He would not elaborate on details, including whether the new Napster would include the famous file-swapping technology that upset the record industry and doomed the company in a sea of copyright infringement litigation.

Santa Clara-based Roxio purchased Pressplay for $12.5 million in cash and approximately 3.9 million shares of Roxio common stock, the companies said. Based on Roxio's closing stock price on Friday, the purchase price would be approximately $39.5 million, the companies said. Roxio shares closed yesterday at $8.09, up $1.19, on the Nasdaq Stock Market.

Roxio bought the Napster brand on the cheap in November after the company, sued into submission by the music labels, dissolved.

"With our acquisition of Napster we obtained the most powerful brand in the online music space. Now, with our acquisition of Pressplay, we have the most complete and scaleable legal technology infrastructure to use as a platform to relaunch Napster," Gorog said.

The deal comes on the heels of the surprising success of the Apple iTunes Music Store. The online pay-per-download service for Macintosh users, which boasts virtually no restrictions on how and where the songs can be played, sold more than 2 million tracks within 16 days of its April 28 launch.

Pressplay was Universal and Sony's attempt to offer a legitimate online music alternative, but its subscription-based model and copy restrictions apparently hampered its success. Analysts estimate the money-losing venture had at most 100,000 users.

Pressplay wouldn't give specific customer figures, but it "didn't have enough subscribers to satisfy us," Kenswil said. "For sure, we see the brand name of Napster as increasing that tremendously."

While the new Napster could become a major online music outlet for Microsoft Windows users, analysts say many challenges lie ahead.

Users associate Napster with "free music," said P.J. McNealy, analyst with Gartner G2. "Roxio is going to have to spend quite a bit of money re-establishing the Napster brand ... as a pay-for-music service."