Analyst Conference Summary

conference date: November 1, 2007 @ 2:00 PM Pacific Time
for quarter ending: September 30, 2007 (2nd quarter fiscal 2008)

Forward-looking statements

Overview: Better than prior guidance on revenues and net loss, with second quarter of positive cash flow.

Basic data:

Revenue was $31.6 million, down 2% sequentially from $32.3 million but up 24% from $25.5 million year-earlier.

Net loss of $5.1 million; it was a loss of $9.0 million year-earlier.

EPS negative $0.12 per share; it was a loss of $0.21 per share year-earlier.

Guidance:

December quarter revenues expected around $32 to $34 million. Ramp depends on partnership ramps in Christmas season. $5 million net loss.

Expects to be cash-flow positive for the fiscal year.

Conference Highlights:

Pleased with improvement in product line up and cash generation.

750,000 world-wide subscription base, down 6% sequentially as expected for summer season.

Slight sequential decrease in revenue was better than seasonal expectations.

Reviewed the quarter's events including deals with AT&T mobile, Sonos and Maxfield. Launched Napster 4.0.

Cash and equivalents ended at $68.4 million. $1.3 million increase in cash. Negative $2.5 million EBITDA.

Servive revenues were $30.9 million, product and license revenue $0.8 million.

Cost of revenues was $22.2 million. Gross profit was $9.4 million and gross margin 29%. R&D expense was $2.3 million, sales and marketing $5.0 million, general and administrative $6.4 million, amortization $1.1 million. Loss from operations was $5.4 million. Other income $0.6 million. Income tax gain of $0.3 million.

Napster 4.0 has been well-received. Improved navigation and ease of use. Customer retention is improving. Web-based platform makes service more universal for customers and easy for 3rd parties to create equipment and web sites that use Napster.

Exclusive portable subsciption service with AT&T mobile launches later in November. Expects to see significant revenues in 2008. U.S. cellular also rolling out a service on a Motorolla phone. DoCoMo now has 25 Napster-compatible handset variations available. Expects to announce more international mobile deployments this quarter.

Believes will be a dramatic structural change from MP3s dominated by iTunes to music phones with a significant Napster presense. Believes Japan ramp is going faster than expected. Implementation quality by carriers and hardware makers is the key factors.

Q&A:

Mobile revenue in Q3 guidance? Guidance is conservative; results depends greatly on carriers. Expect a substantial ramp with AT&T over the next 6 months, but maybe not so much in the December quarter.

AOL subscribers? They have about the same churn trends as the current base. AOL marketing commitment expires in March 2008.

Sony Walkman MP3's had exclusive Napster bundling; in PCs, MP3 players, and cell phones getting increased interoperability for Napster.

Impact from Yahoo shut down? They did not shut it down, have not yet.

Universal and Sony threat? Just a rumor about Total Music. We have had many discussions with Sony and Universal about working with them on a number of different models. We rate the threat level of them making a direct entry to the business as quite low.

Most sign ups in last year have been for the portible subscription service.

Holiday promotions? Circuit City has an extensive plan which includes bundles with hardware.

Motorola relationship? T-Mobile is shipping Motorola handsets that are Napster related and were a result of Motorola relationship.

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