Rhapsody, the Seattle-based company that operates the Napster subscription music service, is cutting an undisclosed number of jobs, part of an effort to sharpen its focus in the face of ongoing competition from Spotify, Apple, Amazon and other rivals.
Mike Davis, who was named Rhapsody’s first CEO last year, has left the company but remains on the board. Bill Patrizio, an executive with Rhapsody shareholder RealNetworks, was named to interim CEO this week.
Patrizio confirmed the job cuts in a phone interview with GeekWire but declined to provide details on the size or scope of the reductions at the privately held company.
“We are, like any successful business, sharpening our focus on the things that matter, and the areas of the business where we’re winning and competing and succeeding. We’re building, candidly, a very strong, very competitive, very sustainable future for the company,” said Patrizio. “Our management team and our board are committed to that successful outcome.”
As part of that sharpened focus, the company made the difficult decision to “inform some of our staff that their roles are being affected by our focus and our strategy,” he said. “It’s always very difficult to make these changes, and we are deeply sincere in our thanks and appreciation for those affected for their service and their commitment to Napster.”
Rob Glaser, the RealNetworks CEO and Rhapsody co-chairman, told investors on a May 3 conference call that Rhapsody had retained the investment bank Rothschild to “to review strategic options for the future,” which is often the prelude to an acquisition or other major M&A investment or transaction.
Rhapsody also disclosed in a May 4 regulatory filing that Rhapsody was expected to default on loans from third-party lenders.
“The default with the third party lenders relates to Rhapsody’s failure to meet a quarterly revenue target that included assumptions regarding the launch of a new product with a different business model than Rhapsody’s subscription service,” the RealNetworks filing says. “Rhapsody subsequently determined that it would not be in their best interest to continue the planned launch of the new product due to associated costs of launch and operation, thus contributing to a revenue shortfall.”
RealNetworks and the Columbus Nova investment firm, the other large Rhapsody shareholder, have loaned the music service an additional $5 million each, and a default on the third-party loans would put those additional loans in default, as well, the filing said.
The filing explained, “Rhapsody is in discussions with the third party lenders to agree on a waiver or forbearance of Rhapsody’s covenant breach, however there is no assurance such waiver or forbearance will be achieved. As of the date of this report (May 4), RealNetworks and Columbus Nova have not elected to declare all amounts outstanding under our loan agreements to be immediately due and payable.”
Interim CEO Patrizio emphasized in an interview that he continues to believe Napster has a bright future.
“From my perspective, there’s a lot of very positive activity going on here at Napster,” he said. “We’ve got great subscriber numbers, our revenue continues to be very strong, we’ve got growing partnerships around the world. We’ve got a very impressive pipeline of new opportunities. We’re available in over 30 countries and now entering the Asia market. The product and the technology platform consistently are awarded among the best music streaming services in the world.”
He added, “It’s against that backdrop that we think we have a lot to be proud of, and good reason to be bullish and optimistic about our future.”
While serving in the interim CEO role at Rhapsody/Napster, Patrizio remains an executive with RealNetworks, the Seattle-based digital media company, which owns a 42 percent stake in Rhapsody following the 2010 spinoff of the music service.
Davis, the previous CEO, has taken a new role as CEO of direct mail company Valpak, according to the Tampa Bay Times.
Rhapsody narrowed its loss to just under $15 million in 2016, from a loss of more than $35 million in 2015, according to a financial summary in RealNetworks’ annual filing with the SEC. Revenue rose to $208 million from $202 million over the same time period. In the first quarter of this year, however, Rhapsody’s net loss grew to $5.6 million, from $5.1 million the year before, and revenue fell to $47.5 million from $52.5 million over the same period.
It’s not the only music company struggling to improve its bottom line. The Information reported today that Spotify’s operating loss has also widened over the past year.
Napster was best-known in the U.S. as the pioneering and highly controversial music trading service that shut down under court order in 2001, before the brand was reborn as a paid music subscription service. Rhapsody, which acquired the Napster brand from Best Buy in 2011, rebranded its U.S. service to Napster last year, making it a global brand for the company.