Napster to explore sale, cites interest

Napster Inc. said on Monday it was considering selling the company or other possible ventures with outsiders looking to hook up with the once-notorious online music service.

Shares of Napster surged 11 percent to a four-month high.

"There's been interest by third parties to acquire the company," Chris Gorog, Napster's chief executive, said in an interview, adding that other proposals had included strategic partnerships or joint ventures. "That activity has heated up as we've gotten traction with a lot of our new products."

Napster said it hired investment bank UBS to help it look into the possibilities.

Napster almost single-handedly launched Internet song swapping but was forced to close in July 2001 after a series of legal battles over copyright infringement. It relaunched as a legal download site in 2003, having been bought by software company Roxio. Roxio renamed itself Napster and shares of Napster began trading in January 2005.

"They've come somewhat full circle from being the rebel with a cause at the beginning of the whole music download trend to being left out in the cold," said Creative Strategies analyst Tim Bajarin, adding that possible suitors include media companies such as Viacom Inc. and cellphone operators.

Napster said as of June 30, it had a paid subscriber base of 512,000, down from 606,000 in the prior quarter.

Meanwhile, Apple Computer Inc. has built a digital music business with its iPod player and iTunes store, which offers music, videos, TV shows and films.

Apple's iTunes accounts for 88 percent of legal downloads in the United States and has sold more than 1.5 billion songs since its inception. The Cupertino, California-based firm has sold more than 60 million iPods since October 2001.

Microsoft Corp. is mounting a challenge to iPod with its Zune digital music player, due to launch later this year.

"Both media properties and potentially handset companies could emerge, if they're willing to put up the marketing budget against Apple and Microsoft," Bajarin said, acknowledging Apple's lead in the market and Microsoft's balance sheet.

Los Angeles-based Napster said it has not set a timetable for completing the evaluation.

"There's been a lot of speculation" about which companies or industries would be interested in Napster, Gorog said. "Any company that is executing at a high level in digital media will likely have at least a conceptual interest in looking at Napster."

Shares of Napster fell 6 cents, or 1.7 percent, to $3.55 on Nasdaq, but in extended trade, the stock climbed to $3.95.

The company last month posted a narrower quarterly loss but said subscriber numbers fell from the prior quarter as it focused on promoting a new free Web site. It made a net loss of $9.8 million, or 23 cents per share, in the first fiscal quarter, against a year-ago loss of $19.9 million, or 46 cents per share. Revenue rose to $28.1 million from $21 million.

(Additional reporting by Deena Beasley in Los Angeles)

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