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Roxio To Concentrate on Online Music Business
DevGhost writes "Roxio Inc. said on Monday it would change its name to Napster and focus on the money-losing online digital music service, selling its profitable CD and DVD software division to Sonic Solutions for $80 million."
This is what happens when you let an MBA run an organisation.
Norman Cook's Ode to Sl
Read the fuckin' summary. The CD/DVD burning division -- which makes DirectCD and the AWESOME toast application -- is profitable. Meaning, it makes profit.
Roxio is SELLING the profitable part of their business to concentrate on the stuff that's not working.
Why? Because they're dumb.
Hey freaks: now you're ju
They probably need to invest gobs of money in their unprofitable operations to get them to turn a profit. Their options were
* Loan a bunch of money from banks or private investors, on the strength of your profitable unit.
* Sell the profitable unit for a lump sum many times its annual profit and invest in in the online business.
* Sell off the unprofitable unit and let it die.
They've retained the final option (they can always decide to fire everybody, though that's not cheap), and they've got a handfull of cash (no strings attached, unlike bankloans or investors) AND the assets of the online business so they don't even have to start a business from scratch to invest it in.
If it all makes sense depends greatly on what their plans are with the cash they've just earned, and the premium of getting a was of cash over other means of investment. It's still likely their online business will die, but if it does, it won't drag the profitable business down into Chapter 11. Possibly saving jobs.
What it comes down to is that the company thought it's unprofitable online music business is a better investment than the profitable business. It's a high risk strategy, so likely they think the potential reward is great. Whether they're wrong, well, they're right about the risk, so we'll see.
SCO employee? Check out the bounty
In order to maintain the income that the CD-Burning unit provided you would only have to make 7.5% off the $80M. I'd propose that there many less risky ways to see 7.5% off $80M then trying to maintaining the profitability of 2nd rate CD-Burning software. I don't think Roxio products will ever see another $80M in profit. I'd question whoever was willing to pay $80M for a company that only makes $6M profit / year. As for focusing on Napster, it's a recognized brand and the online music market is big now and is growing.