Napster Subscriber Numbers Drop

Napster disclosed that it is struggling to keep paying users Wednesday, saying it lost 7 percent of its subscriber base as it promotes the free portion of its site. In a conference call, Napster CEO Chris Gorog said it expected to continue to bleed users as some opt for the no-cost option.

Also in an abrupt turnaround from comments made in late January, Gorog said Napster did not "have its head in the sand" regarding a sale of the company. Several companies are expressing interest in Napster, and executives are "carefully" considering the risks and benefits.

In January, Napster was rumored to be considering a plan to layoff much of its workforce, as well as preparing to sell the company. However, Gorog responded, calling the rumors "patently untrue."

Analysts claim that Napster's lack of a solid business plan a big issue, and said a sale is quite likely since it was mentioned in the call. However, not all news was bad for the company: its loss narrowed to $9.8 million from $19.9 million last year, and revenue jumped to $28.1 million from $21 million.

Napster also counted 512,000 subscribers, including 4,000 non-paying university subscribers. That number represents a 26 percent increase over last year.

Although the free service may be hurting Napster now, Gorog said it would pay off in the long run. "Our new free service should lead to lower subscriber acquisition costs and improved subscriber retention while building advertising revenue," he explained.