Pressplay To Become Napster

Less than two years after going
live as a legal alternative to the rogue file-sharing program Napster, the Pressplay digital
music service has been acquired by Roxio and will be
relaunched as Napster.

Roxio, known mostly for CD and DVD recording software, announced Monday
it would shell out about $40 million in cash and stock to acquire
Pressplay’s distribution infrastructure and music licensing, which was
previously a 50-50 joint venture between Universal Music and Sony Music
Entertainment.

The acquisition signals another phase of the predicted
contraction in the fee-based digital music space.

It follows a
decision by RealNetworks to pay $36 million in cash
for Listen.com. Industry watchers are now speculating that Microsoft will be next in line, possibly in a deal to purchase Chicago-based FullAudio.

The decision by Universal and Sony to bail out on the digital
subscription model (the two would hold a minority share in Roxio) comes as a
surprise. Apple’s initial
success since launching a 99-cent per song service earlier this month
has added some buzz to the business but reports say the two music labels
were bleeding cash from the struggling Pressplay service.

For Roxio, the acquisition proves the company is serious about is stated
plans to add
legitimacy to the controversial Napster brand. Roxio paid $5.3 million
last November to pick
at Napster’s bones in bankruptcy court and now that it has secured
catalog rights from all five major music labels, the company says it has a
“foundation” for the reincarnation of Napster.

“With our acquisition of Napster we obtained the most powerful brand in
the online music space. Now, with our acquisition of Pressplay, we have the
most complete and scaleable legal technology infrastructure to use as a
platform to re-launch Napster,” Roxio chief executive Chris Gorog said in a
statement.

Pressplay, which also enjoys promotional backing from Microsoft and
Yahoo, offers radio stations and unlimited tethered downloads for $9.95 a
month in addition to song downloads that allow for CD burning. Roxio is
expected to maintain that price point, which appears to be one the entire
industry is comfortable with.

Roxio said it would add some features and enhance the functionality of
the combined service before relaunching but no details were provided. The
company said Pressplay’s senior management team and its New York and Los
Angeles offices would remain in place.

Financial terms of the acquisition call for Roxio to spend just over $12
million in cash and approximately 4 million shares of its common stock to
buy out the majority ownership of the two labels.

Roxio said it would spend another $20 million to fund the relaunch of
Napster and warned that, despite the value of the Napster brand, the new
business “will result in negative cash flows until the service is widely
adopted.”