AOL service deal music to Napster's ears

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Shares of online music firm Napster jumped as much as 15% on Friday after the company unveiled a deal to serve as the exclusive provider of subscription music services for Time Warner Inc.'s AOL unit.

The companies didn't disclose financial details but said about 350,000 paid subscribers of AOL's Music Now service will be migrated to Napster under the deal. Napster this month also acquired the subscriber base of the former Virgin Digital service.

The Associated Press reported that analysts put the value of the deal at $15 million. However, some also expressed concern that a sale of the company could now be delayed or not happen at all as an emboldened Napster could try to go it alone.

Napster shares closed up 7.9% at $4.12 after going as high as $4.49 in intraday trading; it led the gainers on The Hollywood Reporter's Showbiz 50 stock index. During the past year, they have traded from $2.55-$5.10. The stock markets were closed Monday in observance of Martin Luther King Jr. holiday.

The arrangement with Napster means that AOL is dropping Music Now, which it bought from Consumer Electronics retailer Circuit City less than two years ago.

Under the partnership, AOL will promote Napster across its network of sites and get a percentage of each resulting Napster subscriber.

Wall Street analysts have said the company needs to boost its user base to better amortize its fixed operating costs and maybe attract more advertising dollars.

"This transaction firmly positions Napster to be the unequivocal global leader in the premium music-subscription sector and the No. 2 overall in digital-music revenue," Napster chairman and CEO Chris Gorog said.

AOL and Napster said they expect to complete the service migration within 60 days.
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