Hopes to generate new revenue streams.

Napster is planning a major overhaul of its Web site early next year in order to tap a new source of revenue -- online advertising. During the company's fiscal second quarter earnings call, Napster CEO Chris Gorog said the revamped site will be a free companion to the Napster service, designed as a "fundamental extension of what we are currently doing" with the subscription service.

"We're not just launching a page with a banner ad on it," he continued. "It's going to be a highly interactive experience connecting artists and fans."

The Web-based business model is Napster's effort to generate new revenue streams outside of the subscription fees currently being paid by its 448,000 monthly subscribers. Napster must pay music labels and publishers a large portion of its monthly subscription revenue in music licensing fees.

An ad-supported business would allow the company to subsidize these costs.

According to Comscore Media Metrix, the Napster Web page generated 2.3 million hits in the month of September, but currently only offers visitors the chance to download its music clients.

"Clearly, we need to do more with that," Gorog said, adding that Napster has named two Web ad sales executives to its staff to drive the model forward.

According to Forrester Research, Internet users spend a third of their media time on the Internet, but only 6% of advertising dollars are spent on Web-based ads. Jupiter Research predicts that online marketing spending will grow to a $19 billion market by 2010.

Napster also said it remains on track to launch an international version of its service in Germany. The company will partner with German MP3 manufacturer Plextor to distribute a Napster-customized device in conjunction with the German store. According to Gorog, Plextor commands 50% of the German MP3 player market, above Apple's 15%.