Napster Hits Record Fourth Quarter Revenues of $29.1 Million and Completes Fiscal 2007 Leading the Industry in On-Demand Music Subscribers

Napster Hits Record Fourth Quarter Revenues of $29.1 Million and Completes Fiscal 2007 Leading the Industry in On-Demand Music Subscribers

LOS ANGELES, May 16 /PRNewswire-FirstCall/ -- Napster (NASDAQ:NAPS) today reported financial results for its fourth quarter and fiscal year ended March 31, 2007.

Net revenue for the fourth quarter of fiscal 2007 grew to $29.1 million, up 9 percent from $26.8 million in the prior year quarter and up from $28.4 million in the third quarter of fiscal 2007. Net loss for the fourth quarter of fiscal 2007 was $8.5 million, or $0.20 per basic and diluted share, compared to net loss of $9.5 million, or $0.22 per basic and diluted share, in the third quarter of fiscal 2007. Net loss narrowed $1.3 million in the fourth quarter of fiscal 2007 compared to the same quarter of fiscal 2006 excluding the after-tax impact of a $5.4 million gain from the sale of the consumer software division as recognized in the fourth quarter of fiscal 2006.

Net revenue for the fiscal year ended March 31, 2007 was $111.1 million, up 17% from $94.7 million in fiscal 2006. Net loss for fiscal 2007 was $36.8 million, or $0.85 per basic and diluted share, compared to net loss of $54.9 million, or $1.28 per basic and diluted share, in fiscal 2006.

"Napster concludes fiscal 2007 as the most popular on-demand music subscription service with healthy annual revenue growth and a significant decline in cash burn," said Chris Gorog, chairman and CEO. "Looking ahead to fiscal 2008, the company will remain deeply focused on bottom-line improvement and will continue to capitalize on our strong market share position as we enter the new era of music-enabled cell phones. We expect this trend to be a substantial contributor to Napster's future growth based on our partnerships with the leading wireless carriers and handset manufacturers worldwide."

At the end of March 31, 2007, Napster's total worldwide paid subscriber base was 830,000, including university subscribers, Napster Mobile subscribers, Napster Japan subscribers and the AOL Music Now subscribers who transitioned in March 2007. The number of paid subscribers grew 47 percent from the third quarter of 2007 and 37 percent year over year.

Napster ended fiscal 2007 with a total of $66.5 million of cash, cash equivalents and short-term investments.

Business Outlook

"We believe that Napster is very well positioned strategically in the market, and with the successful integration of the former AOL music subscribers into Napster we expect revenue will increase to approximately $31 million in the June quarter. Our fourth quarter cash burn from operations decreased to approximately $3.3 million, excluding our one-time payment to AOL, and we expect that quarterly cash burn will further decline in fiscal 2008, reflecting our focus on lowering expenses while maintaining our revenue growth trajectory," said Nand Gangwani, Napster's chief financial officer.

   Corporate Highlights   Napster recently:    -- Announced a joint marketing agreement with Motorola, where Napster will      be Motorola's exclusive in-box digital music service partner, to      develop programs designed to make it easy for mobile consumers to join      the Napster community and load tracks from Napster's over three      million-song catalog to ROKR Z6 and other future Motorola music-enabled      and optimized handsets. The companies will also explore the creation of      unique and exciting new bundled music experiences at retail for mobile      music enthusiasts.   -- Announced that it will soon launch the first deployment of its      unlimited over-the-air (OTA) music subscription service through Napster      Japan, a joint venture between the company and Tower Records Japan,      with NTT DoCoMo, Japan's largest wireless carrier.   -- Joined with Circuit City Stores to offer a new digital music service,      Circuit City + Napster, for consumers to explore and enjoy music.   -- Partnered with AT&T Inc. to give customers free unlimited access for      one year to more than 3 million song tracks through Napster To Go(R),      allowing consumers to customize playlists on their PC and seamlessly      transfer music to compatible wireless phones and music devices. AT&T is      supporting the promotional offers with an extensive, integrated      marketing campaign including national TV, radio, print and online      advertising, and in-store merchandising at AT&T wireless retail      locations.   -- Migrated AOL's Music Now paid subscriber base into Napster's award-      winning digital music subscription service. Napster is now the      exclusive music subscription provider integrated into AOL Music.    Conference Call Information  

The Napster fourth-quarter teleconference and webcast is scheduled to begin at 2:00 p.m. PDT on Wednesday, May 16, 2007. To participate on the live call, analysts and investors should dial 800-218-8862 at least ten minutes prior to the call. Napster will also offer a live and archived webcast of the conference call, accessible from the "Investor Relations" section of the company's Web site at http://investor.napster.com/.

About Napster

Napster, the pioneer of digital music, offers the ultimate in interactive music experiences, creating better ways to discover, share, acquire and enjoy music -- anytime, anywhere. The company's offerings include "Napster" (http://www.napster.com/) -- the most popular on demand music subscription service in the world; "Freenapster" (http://www.freenapster.com/) -- a unique Web experience offering free on demand music legally; and "Napster Mobile" -- one of the industry's fastest growing mobile music platforms. Napster is headquartered in Los Angeles, with offices in Frankfurt, Luxembourg, New York, San Diego, San Jose and Tokyo.

Safe Harbor Statement

Except for historical information, the matters discussed in this press release, in particular matters related to the development and offering of a complete mobile service, the growth in membership in the Napster subscription service, the Company's future revenues, operating expenses and market share, the long-term positive impact of Napster.com on Napster's financial model, increases in visitation to the Napster Web site and the reduction in subscriber acquisition costs are forward-looking statements that are subject to certain risks and uncertainties such as our limited operating history; failure to develop new products and services; flaws inherent in our products or services; decreased demand for our products and services; failure of our products to interoperate with the hardware products of our customers; intense and varied competition; failure to maintain relationships with strategic partners and content providers; and general economic conditions; that could cause actual results to differ materially from those projected. Additional information on these and other factors are contained in Napster's reports filed with the Securities and Exchange Commission (SEC), including the Company's Quarterly Report on Form 10-Q as filed with the SEC on February 8, 2007, copies of which are available at the website maintained by the SEC at http://www.sec.gov/. Napster assumes no obligation to update the forward- looking statements included in this press release.

Copyright (C) 2007 Napster, LLC. All rights reserved. Napster is a registered trademark of Napster, Inc. or its subsidiaries in the United States and/or other countries. All other trademarks are owned by their respective owners.

                               NAPSTER, INC.                   CONDENSED CONSOLIDATED BALANCE SHEETS                   (in thousands, except per share data)                                (unaudited)                                                         As of March 31,                                                     2007          2006              ASSETS   Current assets:    Cash and cash equivalents                       $30,069        $46,812    Short-term investments                           36,414         57,357    Accounts receivable, net of allowance for     doubtful accounts of $10     at March 31, 2007 and $7 at March 31, 2006       1,418          1,042    Prepaid expenses and other current assets         6,547          6,182     Total current assets                            74,448        111,393   Property and equipment, net                        4,736          7,012   Goodwill                                          34,658         34,658   Identifiable intangible assets, net                7,729             --   Investment in unconsolidated entity                   --          2,203   Other assets                                         158            275     Total assets                                  $121,729       $155,541           LIABILITIES AND STOCKHOLDERS' EQUITY   Current liabilities:    Accounts payable                                 $2,231         $3,279    Income taxes payable                              3,393          4,139    Accrued liabilities                              20,181         16,745    Deferred revenues                                 7,601         12,824     Total current liabilities                       33,406         36,987   Long-term liabilities    Deferred income taxes                             3,548          2,622    Other long-term liabilities                          69            159     Total liabilities                               37,023         39,768    Stockholders' equity:    Common stock, $0.001 par value; Authorized:    100,000 shares;     Issued and Outstanding: 44,770 shares at     March 31, 2007     and 43,826 shares at March 31, 2006                 45             44    Additional paid-in capital                      262,730        260,198    Deferred stock-based compensation                    --        (2,934)    Accumulated deficit                           (178,194)      (141,368)    Accumulated other comprehensive income (loss)       125          (167)     Total stockholders' equity                      84,706        115,773      Total liabilities and stockholders' equity    $121,729       $155,541                                  NAPSTER, INC.               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                   (in thousands, except per share data)                                (unaudited)                                Three Months Ended           Year Ended                                  March 31,                March 31,                              2007          2006        2007       2006    Revenues:    Service                 $28,944       $26,231     $110,380    $90,784    Product and license         189           548          701      3,907     Total revenues          29,133        26,779      111,081     94,691    Cost of revenues:    Service                  20,357        18,588       76,203     64,468    Product and license         812           701        2,443      4,740     Total cost of revenues  21,169        19,289       78,646     69,208    Gross margin               7,964         7,490       32,435     25,483     Service gross margin %      30%           29%          31%        29%    Product and license     gross margin %          (330)%         (28)%       (249)%      (21)%      Gross margin %            27%           28%          29%        27%    Operating expenses:    Research and development  2,923         2,923       11,045     13,137    Sales and marketing       6,043         9,629       34,213     51,741    General and     administrative           6,659         4,888       24,311     20,881    Amortization of     intangible assets          271            --          271      1,265     Total operating      expenses               15,896        17,440       69,840     87,024    Loss from operations     (7,932)       (9,950)     (37,405)   (61,541)    Other income, net            680           863        4,018      2,811   Loss before income    tax provision           (7,252)       (9,087)     (33,387)   (58,730)   Income tax benefit    (provision)               (291)         1,999      (1,257)      1,160   Loss from    unconsolidated entity        --         (226)      (1,991)      (289)   Loss from continuing    operations, after    income taxes            (7,543)       (7,314)     (36,635)   (57,859)   Income (loss) from    discontinued    operations,    net of tax effect         (953)         2,914        (191)      2,914    Net loss                $(8,496)      $(4,400)    $(36,826)  $(54,945)    Basic and diluted     net loss per share:    Loss per share     from continuing     operations             $(0.17)       $(0.17)      $(0.85)    $(1.35)    Income (loss) per     share from     discontinued     operations             $(0.03)         $0.07          $--      $0.07   Basic and diluted    net loss per share      $(0.20)       $(0.10)      $(0.85)    $(1.28)     Weighted average shares     used in computing net     loss per share    Basic and diluted        43,239        43,026   43,187         42,989  

First Call Analyst:
FCMN Contact: molly@blueshirtgroup.com

Source: Napster

CONTACT: media, Becky Farina of Napster, +1-310-281-5005,
becky.farina@napster.com; or investors, Alex Wellins, alex@blueshirtgroup.com,
or Jennifer Jarman, jennifer@blueshirtgroup.com, both of The Blueshirt Group,
+1-415-217-7722, for Napster

Web site: http://www.napster.com/

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Profile: International Entertainment