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Pressplay May Take Napster Name in Sale

Sources say Universal and Sony are close to a deal to sell their online music service to Roxio, which is expected to rename the venture.

May 17, 2003|Jon Healey and Joseph Menn | Times Staff Writers

The online music service launched by two of the world's largest record companies to combat Internet piracy may soon have a new and familiar name: Napster.

Sources said Friday that Universal Music Group and Sony Music Entertainment were nearing a deal to sell Pressplay, their 3-year-old online music venture, to the software company that bought Napster Inc.'s name and technology at a bankruptcy auction last year.

Roxio Inc. is expected to dump the Pressplay brand and rename it after the pioneering online song-sharing service, which enabled tens of millions of music fans to steal billions of songs until it was shut down by a federal judge. Universal, Sony and other record labels continue to blame Napster and its offspring for a prolonged slump in CD sales.

The deal, which could be announced as early as Monday, would have the ironic outcome of teaming Universal and Sony with the man who personifies the pirated music revolution: Napster founder Shawn Fanning, whom Roxio hired as a part-time advisor in February.

It would underscore how poorly the labels have fared in their efforts to produce an attractive yet legal music service. But it would enable the record companies to trade a money-losing subscription service for an undisclosed stake in Roxio, the leading manufacturer of software for recording CDs. The deal would give Roxio access to the major labels' songs, as well as a proven and legal means for distribution.

The tentative deal has come together in the last two weeks, sources said, in the wake of two watershed events.

One was the introduction by Apple Computer Inc. of an industry-sanctioned system for selling songs, which was seen by many as a dramatic improvement over the major labels' efforts. Apple's iTunes Music Store sold more than 2 million tracks in its first two weeks.

The other was a ruling by a federal judge in Los Angeles that two file-swapping networks that gained fame after Napster's demise were not illegal and could not be shut down by the labels.

The initial value of Roxio's offer is about $30 million and consists mainly of stock, sources say. Executives at Universal, Sony, Roxio and Pressplay declined to comment.

After Sony and Universal formed Pressplay and the other three major record companies launched the MusicNet service with RealNetworks Inc., competitors accused the labels of trying to corner the market for music on the Net. Now Universal and Sony are looking to cut their substantial losses on Pressplay, and MusicNet is on the verge of being dropped by one of its two distributors.

Universal has lost at least $30 million on Pressplay, and Sony Corp.'s music division is likely to have pumped an equal amount into the fledgling service, according to a recent securities filing by Vivendi Universal. Sony and Universal each agreed to spend up to $50 million on their joint service, but their interest in selling the company now suggests that it needs even more help finding an audience.

Pressplay hasn't disclosed how many subscribers it has signed up, but analysts estimate it's fewer than 50,000. By comparison, more than 4 million people log onto Kazaa, the most popular file-sharing service, at almost any hour of the day.

Pressplay, which costs at least $9.95 a month, lets consumers listen to or download an unlimited number of songs from a huge online library. But it comes with piracy-deterring restrictions that make it less attractive than the free file-sharing networks.

Napster pioneered the concept of creating an online network that let people find and copy songs from one another's computers. The company's free service eventually attracted 40 million users before record industry lawsuits forced its shutdown in July 2001.

Roxio has said little about its intentions for its new version of Napster. Unlike the initial version, it is designed to pay rights holders and allow them to limit how songs can be copied, transmitted or stored. Roxio executives have said they intended to launch something this year.

Buying Pressplay could help generate more consistent revenue for Roxio, whose software sales have been sporadic, said analyst Phil Leigh of investment bank Raymond James & Associates. The service also could boost sales of Roxio's CD-recording software, he said.

Changing the service's name to Napster is a tricky proposition. Analyst P.J. McNealy of GartnerG2, a technology research firm, said it's not necessarily the right brand for a subscription service because "Napster equals free music."

Shares of Roxio on Friday closed at $6.90 on Nasdaq, up 43 cents.

Times staff writer Jeff Leeds contributed to this report.

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