Shares in music subscription service provider Napster Inc. [
NAPS] have lost so much value that its cash assets may now be worth more than its market capitalization, meaning that the business itself would have negative value. Napster had
$69.8 million in cash, cash equivalents and short-term investments, according to regulatory filings; the company's street value dipped as low as $50.2 million this week. Recent takeover
speculation may have fueled a minor comeback, although Napster's market capitalization stands at about $65.5 million in midday trading.
Napster provides an online subscription service wherein customers can stream and download music from a library of 6 million songs from all four major labels and thousands of independent labels. The service amounts to a rental of music; its song files "expire" when users cancel their subscriptions. The company had 761,000 subscribers at the end of March, down from 830,000 a year earlier, and it has lost money since its inception. Two months ago, it
added a
DRM-free download store.
In May, three dissident shareholders
initiated a proxy fight in an attempt to install themselves on its board of directors and initiate changes at the company. An analyst from boutique bank Canaccord Adams said in May that Napster "
lack[s] a clear path to profitability," and like
most observers doubted that Napster's new MP3 download store would help much.
Hedge fund JDS Capital Management, whose private equity arm Dimensional Associates owns subscription-based music retailer eMusic Inc. and a majority stake in publicly traded digital music distributor The Orchard Enterprises Inc. [
ORCD], has been
mentioned as a potential buyer. RealNetworks Inc. [
RNWK], which operates rival subscription service Rhapsody, could also be interested. Rhapsody
opened its own MP3 store in June.
Napster, which acquired the rights to its name and logo after the original Napster peer-to-peer file-swapping service filed for bankruptcy,
introduced a Disney-themed radio station this week,
touting "Hanna Montana" [sic] content.
-- Paul BonanosSee May 2008 posts from Tech Confidential concerning Napster's
MP3 store and
proxy fightFor more, see
Bloomberg
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