January 13, 2007
`AOL, Now Focused on Free, Sells Its Paid Music Service
`By SAUL HANSELL
`
`After six years of trying to build an online music service, AOL agreed yesterday to sell its AOL Music Now
`to Napster. Napster will pay $15 million to add AOL’s 350,000 subscribers to its own 566,000.
`
`The price amounts to about $43 a subscriber, which appears low considering that Napster — which only
`sells a music service — is valued at $186 million, or $328 a subscriber.
`
`One reason may be that AOL’s music business has been shrinking quickly. It had 450,000 subscribers in
`the middle of 2006, when the company stopped marketing the service as part of a shift away from fee-based
`businesses.
`
`“AOL is treating this like a nonessential business,” said Fred Moran, an analyst with the Stanford Group.
`He said the deal was positive for Napster, which disclosed in September that it had hired investment
`bankers to evaluate potential acquisition offers. The bankers are still working, said a Napster
`spokeswoman, Dana M. Harris, who would offer no details.
`
`Napster’s shares rose by 30 cents, to $4.12.
`
`AOL is now focused on free sites supported by advertising, and it continues to operate AOL Music, the
`second-most-popular music destination on the Internet.
`
`AOL first helped found MusicNet, a consortium that included several record labels and the digital media
`company RealNetworks. It introduced a music service based on MusicNet in 2003. In October 2005, AOL
`bought Music Now, a similar service that had been owned by the electronics retailer Circuit City. The price
`was reported at the time to be $10 million to $15 million, although AOL would not confirm it.
`
`AOL’s services, much like Napster and Rhapsody, which is now owned by RealNetworks, mainly offer
`subscriptions for unlimited song downloads, but the songs stop playing if the customer does not pay the
`monthly bill.
`
`This model has not proved to be as popular as the à la carte model used by Apple’s iTunes Store. One
`reason is that music from the subscription services cannot be played on Apple’s popular iPod players. AOL,
`Rhapsody and Napster all use software from Microsoft that lets their songs play on a variety of players
`from Samsung, Creative, iRiver and other manufacturers. But none of these devices have come close to
`challenging the iPod. Microsoft further confused the market last year when it introduced its Zune player,
`which was not compatible with any subscription services other than its own.
`
`Apple Exhibit 4150
`Apple v. SightSound Technologies
`CBM2013-00020
` Page 00001
`
`

`
`This month, the Virgin Group said that it would close its Virgin Digital music service.
`
`AOL and Napster both charge new customers $9.95 a month if they want to listen to music only on a
`computer and $14.95 a month if they want to use a portable player as well. Some AOL subscribers have
`been paying $8.95 a month, and Napster will continue to honor that price for them. AOL customers will be
`converted to Napster unless they choose to cancel their subscriptions.
`
`As part of the arrangement, Napster, based in Los Angeles, will promote its service on AOL’s music pages,
`and it will make additional payments to AOL if it reaches certain new subscriber targets.
`
`Copyright 2007 The New York Times Company
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