As a result of this transaction, Roxio has acquired a legal digital music distribution infrastructure and catalog rights with all five major music labels. Pressplay will serve as the foundation forthe launch of Roxio’s new legal on line music service under the Napster brand.
â€œRoxio’s acquisition of Pressplay significantly accelerates the development of our online music business which is central to the strategic development of our company,â€ said Chris Gorog, Roxio’s Chairman and CEO. â€œWith 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 scaleable legal technology infrastructure to use as a platform to re-launch 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.â€
Under the terms of its agreement, Roxio has acquired substantially all of the interests of Pressplay, the joint venture of Universal Music Group (UMG) and Sony Music Entertainment (SME). Roxio purchased its 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, SME and UMG each have the right to earn up to $6.25 million based on positive cash flows resulting from the new Napster service.
UMG and SME will each provide a representative to join Roxio’s board of directors. Pressplay’s president, Mike Bebel, will report directly to Chris Gorog, and Pressplay’s senior management team and its offices in Los Angeles and New York will remain in place.
â€œOnline 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 which will help propel the growth of this industry,â€ concluded Mr. Gorog.
Zach Horowitz, President and COO of Universal Music Group, said, “The potential of the legitimate online music market is only now becoming apparent. Pressplay was an early mover in this area and has already established itself as a significant force. 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 Vice President, Sony Music Entertainment said, â€œWhen 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.â€
â€œWe are tremendously excited about becoming part of Roxio. The synthesis of our online music service, new technology developments and the Napster brand will result in an offering that we expect will surpass the usability and features of all other legal online music services,â€ said Mike Bebel, President of Pressplay.
In commenting on the immediate financial impact of the transaction Roxio’s CFO Elliot Carpenter said â€œWe 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.â€ Roxio will provide a more detailed outlook of the financial impact of this transaction to its fiscal first quarter ending June 30th as part of its year end and fourth quarter earnings conference call already scheduled for May 21, 2003.