Posted on: Sunday, February 22, 2004

Hewlett-Packard dumped Napster deal

By Dawn C. Chmielewski
Knight Ridder News Service

It was a breakthrough deal that would have put the Napster kitty on millions of Hewlett-Packard computers.

But in the days leading up to Napster's relaunch in late October, HP suddenly — and without explanation — returned Napster's $250,000 check and canceled the agreement to install a link to Napster's online music service on its computers.

Worse, in January HP announced a surprise partnership with Napster rival Apple Computer to feature the iTunes music store on HP computers and sell Hewlett-Packard-branded iPod music players.

Neither HP nor Napster's parent company, Roxio, would comment on the soured deal, whose details were confirmed by sources familiar with the agreement. But its collapse was one of several setbacks since the reintroduction of Napster, the pioneering song-swapping renegade, as a paid music service. Napster is losing money, and top executives have left the company — including its president, chief financial officer, vice president of programming, head of corporate communications and a key board member. On Wednesday, Roxio began laying off people at its Napster division. A spokeswoman said the company is "eliminating redundancies in the organization" but declined to say how many people lost their jobs.

And while Napster can legitimately claim it's the second most popular online music service, information provided by insiders at two of the major music labels shows it sells only about a quarter the number of downloads from their artists as Apple's market-leading iTunes store. Napster refused to release download figures.

"I think it's a very competitive market with very ugly economics and there's just no money in the download business," said Steven Frankel, managing director of Adams, Harkness and Hill, a Boston investment bank.