Roxio reports losses for 3rd quarter, Napster not helping

Silicon Valley Biz Ink is reporting that the Roxio software business is having financial troubles. In the third quarter of this year, they reported a loss of $ 11.9 million on revenue of $ 22.8 million for the quarter ended Sept. 30, compared with a loss of $ 1.8 million on revenue of $ 27.9 million during the same quarter of 2002. The company, which has $ 36.6 million in cash, derives more than 90 percent of its revenue from software.

Some say the pressures of a mature and commoditized market -- and, as one former Roxio manager insists, poor execution, ever-shifting goals and insufficient engineering talent -- has rendered Roxio's CD and DVD-burning software business impotent. "I got tired of the strategy changing every week," says a frustrated former Roxio manager, who asked to remain anonymous. "My opinion is they just didn't pay attention to the software business as they should have. Now they're draining the bank for Napster." Two Wall Street analysts even go as far as saying Roxio gradually will exit the software business (its sole source of revenue prior to Napster) or at least minimize its role to a loss-leader.  "They've changed their business model on a dime," Gene Munster, senior research analyst with US Bancorp Piper Jaffray, told Biz Ink in September. "The software business logically doesn't make a lot of sense for them down the road. I think it will continue to decline for a year, and then stabilize." Although Roxio's software is relatively popular, Munster believes the maturity in the marketplace and pricing pressure from competitors will make it difficult for the software to drive growth at the company.

But a few market researchers believe Roxio will survive this by innovative new products and just honing their strategy. At least that's what Michael Gartenberg, vice president and research director of New York-based Jupiter Research Inc is saying:

"There is going to be a certain amount of refocusing, but I don't expect Roxio to get out of the software business," Michael Gartenberg, vice president and research director of New York-based Jupiter Research Inc. "I think the company's done a very good job with its software, which remains competitive. Their challenge will be to continue to innovate."

Roxio plans to release an integrated suite of CD/DVD-burning software, code-named "Godzilla." There aren't any specifics other than the release will incorporate Napster and pull together all different kinds of digital media, including video, music and photography, into a single interface. You can read the rest of the article here.

Source: Silicon Valley Biz Ink