NAPSTER OWNER ROXIO Q3 REVENUE DROPS

Napster parent Roxio Inc. reported lower revenue and a widened loss for its fiscal second quarter, though the company was upbeat on the "exceptional progress" for Napster.

Roxio chairman and CEO Chris Gorog insisted the quarter was a good one for Roxio's software business, led by its flagship Creator 6 digital media suite.

Overall, Roxio's revenue was $22.8 million for the quarter, down 18% from last year. Operating expenses jumped to $8.9 million from $5.2 million a year earlier. Roxio's loss expanded sixfold to $11.9 million.

About $9 million of the loss came from the company's music division, which is launching a revamped version of the Pressplay music service, originally acquired from Sony Corp. and Universal, under the Napster brand and technology, obtained in a bankruptcy auction last year.

"Our beta launch of Napster 2.0 drew significant interest and set the stage for the eagerly awaited consumer launch of the service next Wednesday (10/29)," Gorog said in a statement, adding that early reviews of Napster 2.0 have been "extremely positive."

In a conference call, Gorog predicted that "Napster will quickly emerge as the gold standard" in online music. He declined to predict how many subscribers Napster would attract compared to Apple's iTunes. But iTunes' success is "a great indicator that there is pent-up demand for digital music," Gorog said, adding the company will launch an advertising campaign in support of its introduction of Napster.

Increasing fear of legal action against online music piracy will also boost interest, he predicted.

While management would not provide prelaunch guidance for Napster, executives said they will provide a midquarter update, with detailed financial guidance to come as part of the next quarterly earnings report.

Before the earnings report, Roxio shares closed down 5.2%, fall 52 cents to $9.51.