Roxio Acquires Pressplay Online Music Service

Under the agreement, Santa Clara, Calif.-based Roxio purchased majority ownership of Pressplay, a joint venture of Universal Music Group (UMG) and Sony Music Entertainment (SME), for $12.5 million in cash and 3.9 million shares of Roxio common stock, putting the total value of the deal at roughly $39.5 million, excluding transaction costs. SME and UMG each have the right to earn up to $6.25 million based on positive cash flow resulting from the new Napster service, Roxio reported.

Plans also call for UMG and SME to each provide a representative to join Roxio's board. In addition, Pressplay President Mike Bebel will report directly to Roxio Chairman and CEO Chris Gorog. Pressplay's senior management team and its Los Angeles and New York offices will remain in place, according to Roxio.

Best-known for its Easy CD Creator (Windows) and Toast (Macintosh) CD/DVD burning applications, Roxio has been sharpening its focus on its digital media offerings. In April, the company sold its GoBack system-recovery product to Symantec, which followed its acquisition of Napster in November 2002. Roxio's other digital media products include PhotoSuite (digital photography) and VideoWave (digital video).

"Roxio's acquisition of Pressplay significantly accelerates the development of our online music business, which is central to the strategic development of our company," Gorog said in a statement. "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 scalable legal technology infrastructure to use as a platform to relaunch Napster. After taking the necessary time to add features, enhance functionality and improve usability, we will launch a new service with an extremely compelling consumer experience that builds on the qualities of the Napster brand."

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Roxio didn't give a timetable for the Napster relaunch, but the company previously said it planned to roll out the new service later this year. In the announcement of the Pressplay acquisition, Roxio CFO Elliot Carpenter said the company expects to spend about $20 million on the Napster relaunch and that it anticipates negative cash flows until the service is broadly adopted. Roxio said it has a base of more than 100 million digital media customers.

Roxio's acquisition of Pressplay comes on the heels of Apple's launch of its iTunes Music Store, which went live in late April. The Cupertino, Calif.-based computer maker said its online music service sold more than 2 million songs in just over two weeks of operation.

Accessed through Apple's iTunes 4 digital music jukebox software, the iTunes Music Store enables users of Apple Macintosh computers and iPod MP3 players to search and preview a catalog of more than 200,000 songs and then use a credit card to buy and download music for 99 cents per title. There's no subscription fee, and users can burn songs onto an unlimited number of CDs for personal use, listen to songs on an unlimited number of iPods, play songs on up to three Macs and use songs in other Mac applications. At the time of the iTunes Music Store's launch, Apple CEO Steve Jobs hailed the service as giving consumers "revolutionary rights" in legal use of digital media. Apple inked deals with five big music labels--BMG, EMI, Sony Music Entertainment, Universal and Warner--in assembling a music catalog for the iTunes Music Store.

Technology vendors such as Roxio and Apple are positioning themselves as digital content providers to feed the emerging "multimedia household," industry observers say.

Media networking, in which media servers store and play rich content over a home network, is expected to represent 49 percent of total home networking revenue by 2007, compared with a 6 percent share in 2002, according to research firm In-Stat/MDR. Overall revenue for the home networking space is projected to hit $5.3 billion by 2007, up from $1.8 billion last year.

Helping to fuel that demand are consumers' changing attitudes about PCs, which are being deemed as entertainment "control centers." In a Microsoft-commissioned poll by Harris Interactive, 43 percent of more than 2,000 computer users (ages 13 years and older) surveyed said their computers are more important than their televisions. Also, 63 percent said their PCs are more important than their CD players, 61 percent said their PCs outrank their stereos and 59 percent said their computers are more important than their DVD players.