Napster Rises Again -- to Mixed Reviews

Roxio, Napster's owner, plans to relaunch the service by the end of the year.
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Updated from 1:30 p.m. EDT

Roxio

(ROXI)

, the owner of Napster, said Monday that it will introduce a new version of the popular online music service by the end of the year, this time charging users for more than half a million songs licensed from recording companies.

The new service, called Napster 2.0, will be available by monthly subscriptions or individual downloads, resolving the piracy issue that had led the original Napster to shut down two years ago.

Following the announcement, some analysts were offering words of caution on Roxio's plan.

"We are very concerned with the competitive environment, with so many other companies preparing to launch similar services soon," said Justin Cable, an analyst at B. Riley & Co. "The company's core business, software, is in decline, and the Napster brand won't be enough to generate sustainable growth."

Cable has a sell rating on Roxio, and his firm doesn't own shares or have an investment banking relationship with the company.

The launch of the new Napster version comes one quarter sooner than anticipated, "which will give them an early lead, but there will be other players soon and the $40 million the company is spending on advertising may not be enough to fend off competition from prominent Internet companies," Cable said.

Among those names are some of the best-known and biggest tech companies in the world, including

Apple Computer

(AAPL) - Get Report

,

Amazon.com

(AMZN) - Get Report

,

AOL Time Warner

(AOL)

,

RealNetworks

(RNWK) - Get Report

and

Yahoo!

(YHOO)

.

Shares of Roxio lost 30 cents, or 3.8%, to $7.69 in

Nasdaq

trading.

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Cable wasn't alone in his concerns. Roth Capital Partners reiterated its sell rating on Roxio Monday, as a result of "intense competition in the online music business" and a deteriorating balance sheet, among other factors.

Meanwhile, U.S. Bancorp Piper Jaffray affirmed its strong buy rating on Roxio and raised its price target to $12 from $10, citing Napster's early launch and its flexibility between downloads and subscriptions as positive factors.

US Bancorp has an investment-banking relationship with the company.

Besides charging users for digital music, Napster 2.0 won't allow them to share files, eliminating potential litigation involving file-sharing programs.

"Napster 2.0 is being built from the ground up to reflect the essence of independence and innovation that the brand is known for," said Roxio Chairman and CEO Chris Gorog. "Consumers want flexibility, and for the first time they will not have to choose between downloads or subscriptions."

The new Napster strategy was inspired by the recent success of Apple's iTunes, which allows users to download songs for 99 cents each and keep them indefinitely in their computers. Other services, such as MusicNet, Pressplay and

Listen.com's

Rhapsody, charge a monthly fee for access to an unlimited number of songs.

Recently, Roxio purchased Pressplay to gather all of its online music users under the Napster umbrella.