Roxio announced that it acquired Pressplay (the joint venture between Universal Music Group and Sony Music Entertainment), which gives Roxio a legal digital music-distribution infrastructure and catalog rights with all five major music labels. Pressplay will serve as the foundation for the launch of Roxio’s new legal online music service under the Napster brand.
“Roxio’s acquisition of Pressplay significantly accelerates the development of our online music business,” said Chris Gorog, Roxio’s chairman and CEO. “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.”
Under the terms of its agreement, Roxio has purchased a majority ownership for $12.5 million in cash and approximately 3.9 million shares of Roxio common stock. Based on Roxio’s closing stock price on May 16, 2003, the purchase price would be approximately $39.5 million, excluding transaction costs estimated at approximately $1 million. In addition, Sony Music Entertainment and Universal Music Group each have the right to earn up to $6.25 million based on positive cash flows resulting from the new Napster service.
Both labels will each provide a representative to join Roxio’s board of directors. pressplay’s president, Mike Bebel, will report directly to Gorog, and pressplay’s senior management team and its offices in Los Angeles and New York will remain in place.
“Online music is highly synergistic with our core business of CD/DVD recording and digital media software and will be of great interest to our global customer base of over 100 million digital media consumers. Very significant positive changes have recently occurred in the legal online music sector resulting in far greater availability of content and much broader flexibility for consumers. We believe these critical changes now provide an environment for a very positive consumer experience that will help propel the growth of this industry,” said Gorog.
Zach Horowitz, president and COO of Universal Music Group, said, "The potential of the legitimate online music market is only now becoming apparent. The combination of pressplay, Roxio and Napster uniquely positions the service for the future. We are excited to continue to be part of that future by becoming a major shareholder in Roxio and look forward to working with Chris Gorog and his team to find new ways to make the online music experience an especially compelling one."
Robert Bowlin, executive VP at Sony Music Entertainment, said, “When pressplay launched in 2001, one of its great differentiating features, CD burning, was made possible by its relationship with Roxio. We believe that the combination of Roxio’s strong software expertise and its Napster brand, with pressplay’s unique programming and depth of content, will create an unparalleled service for music fans.”
Commenting on the immediate financial impact of the transaction, Roxio’s CFO Elliot Carpenter said, “We anticipate spending approximately $20 million to fund the relaunch of Napster. Following the relaunch, we expect that this new business will result in negative cash flows until the service is widely adopted.”
Roxio will provide a more detailed outlook of the financial impact of this transaction to its fiscal first quarter ending June 30. For more, visit www.roxio.com.