Napster's Q1 2008 earnings release was filled with bad news. The company's number of paid subscribers dropped 6.8% from Q1 to 708,000. Net revenue of $30.3 million was down both sequentially and year-over-year. Net loss was down slightly both sequentially and year-over-year.

Napster has an accumulated deficit of $199 million. Will it pass $200 million in Q3? Absolutely. Even though the company said total MP3 tracks sales were up 5% (due to the launch of its new MP3 store), it is working against two clear trends: Lost subscriber revenue, the lifeblood of the company, is not likely to be overcome by whatever tiny gains can be achieved in MP3 sales or new mobile subscriptions. The company is fighting for life when the consumer market has clearly voiced its indifference to music subscriptions. What little demand exists for subscriptions won't provide adequate return for the current number of players. Somebody needs to drop out. (This is a good time for Rhapsody to get a few hundred thousand subscribers at a low acquisition cost.)

Investors value the company at cash, which is a correct outlook on its future and a correct assessment of its business model.