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Roxio sells software core, adopts Napster shell

Sonic to pay $80m

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Apparently tricked by its own hype, Roxio has decided to sell off its consumer software business and focus instead on the dubious online music market. The company will go so far as to give up the Roxio name, taking on the Napster name of its music division.

Sonic Solutions has agreed to pay $80m for Roxio's CD and DVD recording, authoring, photo and video editing applications. Roxio will receive $70m in cash and $10m worth of Sonic's stock. Roxio will also change its company name to Napster and looks to trade under the symbol NAPS on the NASDAQ exchange.

"With the successful completion of the transaction, Napster will emerge as a well-positioned pure-play in the fast-growing digital music sector with a substantially enhanced balance sheet that will support our growth plans,” said Chris Gorog, Roxio's chairman and chief executive officer.

There is room to question the sanity of this decision. True enough, Roxio wasn't that exciting as a consumer software company, but at least it had firm ground underneath it. The Napster music rental service seems a much more precarious concept than selling consumers useful software.

Napster, which Roxio resurrected about two years ago, is way behind Apple's iTunes service in terms of number of songs sold and behind RealNetwork's Rhapsody service in terms of subscribers. Napster is only pulling in about $7.9m a quarter. Beyond this, Roxio has only sold $1.1m worth of Napster-branded MP3 players, which compares unfavorably with the close to $1bn in iPod sales Apple will show this year. So far, the only real money in legal online music has come from these devices, and Apple is eating up all that cash, so far.

What do analysts say about the future of music downloads and rental services?

Well, Jupiter Research speculates that digital music sales will reach $270m in 2004. By 2009, this market could hit $1.7bn. Not bad, right?

Another firm, however, is less optimistic. The Diffusion Group conducted a survey and found that only 4 percent of consumers would commit to subscribing to a $9.95 per month music rental service. Twenty-three percent of those surveyed indicated some interest in such a service with the vasty majority saying they were put off by the idea.

Renting music requires consumers to accept two new principles - the most obvious being that their music collection will disappear in an instant once a monthly payment is missed. The other is that consumers must deal with DRM technology which puts limits on what they can do with purchased tunes. With CDs, you actually own what you pay for and can do what you like with the product. Ah, the good old days.

So Roxio, er Napster, has turned itself into an experiment.

To its credit, the company has gained a lot of press by signing deals with universities for the Napster service and by giving away MP3 players. But, happy news clippings don't pay the bills, and neither the college deals or the giveaways have done much at all to help the company's bottom line.

The deal with Sonic is expected to close in the fourth quarter and is subject to standard shareholder approval conditions. Sonic expects to keep the Easy Media Creator, PhotoSuite, VideoWave, Easy DVD Copy and Toast brands and most of the Roxio workers. ®

Related stories

Judge will not dismiss 'Napster investor' suit
Napster pays BestBuy $10m to promote music service
Napster gives away MP3 players
Napster parent Q4, FY loss widens
Napster's music licensing frustration

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