Music service reports record revenues.

Napster Inc. reported Wednesday (Aug. 2) that its fiscal first-quarter loss narrowed from the year-ago period as the online music service posted record revenues and boosted its subscriber rolls during the quarter.

However, the company forecast revenue below Wall Street's view and shares tumbled more than 9 percent in late-session trade.

For the quarter ended June 30, Napster lost $9.8 million, or 23 cents per share, compared to $19.9 million, or 46 cents per share, in the year-ago period.

Revenue rose to $28.1 million, including a one-time benefit of $1.9 million from prepaid cards, the company said. Napster posted revenue of $21 million in the same period last year.

Analysts surveyed by Thomson Financial expected a quarterly loss of 36 cents per share on sales of $27.3 million in the latest period.

"Our first quarter was highlighted by record revenue and the launch of our new advertising-supported free music service, which is off to an encouraging start as we saw an over 50 percent increase in monthly unique visitors and ended the quarter with a run rate of 60 million page views per month," Chris Gorog, Napster's chairman and chief executive, said in a statement.

Napster said it closed the quarter with a paid customer base of 512,000, including 4,000 subscribers at universities.

Excluding the university subscribers, the company's premium subscriber base increased 26 percent from the first quarter 2005, the company said.

In May, Napster launched an ad-supported service that allows limited free, on-demand access to the service's more than two million songs.

But the shift in strategy resulted in a 7 percent decline in the company's subscriber base compared to the fourth quarter, the company said.

Napster said it expects the ongoing changes to its Web site will eventually help boost the number of users who shift from the free service to buying a paid subscription.

"We expect that these changes will result in substantial new subscriber additions during the second half of our fiscal year, which is typically our strongest sales season," Gorog said.

The company also said its new mobile phone music download service will begin rolling out in the Southeast next week.

Looking ahead, Napster expects to report second-quarter revenue of about $25 million. Wall Street had projected sales of $29.4 million during the period.

Napster shares fell 9.1 percent to $2.50, in aftermarket trading. Ahead of the report, the stock rose 13 cents, or 5 percent, to close at $2.75 on the Nasdaq Stock Market.

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