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Looking through the Napster Inc. (NASDAQ:NAPS) 10-K, it is difficult to find many companies that don't compete with the provider of on-demand music subscribers using streaming or downloading. Napster lists Apple (NASD:AAPL) iTunes, RealNetworks (NASD:RNWK), Yahoo! (NASD:YHOO), Sony (NYSE:SNE), AOL, MTV, Wal-Mart (NYSE:WMT), Amazon (NASD:AMZN), XM (NASD:XMSR), and Sirius (NASD:SIRI). They may have left out Microsoft (NASD:MSFT) and a few others, but the list is pretty comprehensive.

This may be why, when you back out the $111 million of cash and securities on the Napster balance sheet as of 12/31/05 from the $190 million market cap, you don't have much left:

In Q4 05, Napster had revenue of $23.1 million up from $12.1 million a year before. But the operating loss rose from $15.7 million to $18.3 million. And revenue was actually flat compared to Q3 05.

The company recently said that its fiscal fourth quarter (3/31/06) will show revenue of about $26 million and less cash burn that Wall Street had anticipated, but the growth is still very small, about 12% over the quarter immediately before.

With Apple's growth in this business and the large number of companies with substantial resources looking for a piece of the market, it is very hard to see what Napster's future will be.

As the company says in its own 10-K "we may not be able to maintain our competitive position against current and potential competitors, especially those with significantly greater resources". Who could say it better? This company is in trouble.

NAPS 1-yr Chart



Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He was also president of Switchboard.com when it was the 10th most visited site on the internet, according to MediaMetrix. He has been chief executive of FutureSource, LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. McIntyre can be reached at douglasamcintyre@gmail.com.

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Source: Napster's Bleak Future (NAPS)