Roxio Posts Year-Over-Year Revenue Growth And Narrows Loss In The First Quarter

Announces Sale of Software Division; Will Change Company Name to Napster

Santa Clara, California - (August 9, 2004) - Roxio®, a division of Sonic Solutions® (NASDAQ: SNIC), the leader in digital media software, today reported financial results for its fiscal first quarter ended June 30, 2004. In a separate news release issued today, the Company announced that it has signed a definitive agreement to sell all of the assets and liabilities of its software division to Sonic Solutions for $80 million and plans to change its corporate name to Napster. Given this development, Roxio management has changed the time of its conference call from 1:30 PM PT to 2:30 PM PT today and will discuss both the quarterly results and the transaction on this call.

Chris Gorog , Roxio's Chairman and CEO, said, "Today's announcement of the planned sale of our software division will allow us to focus all of our efforts on Napster and the fast-growing online music market. Subject to stockholder approval and standard regulatory reviews, this transaction will significantly enhance our balance sheet resulting in a net cash position well in excess of $100 million, which will support our efforts to drive subscriber growth and accelerate Napster's competitive position."

Net revenue for the first quarter of fiscal 2005 increased to $29.9 million compared to $24.2 million in the first quarter of the prior fiscal year. Roxio's net loss for the quarter was $2.6 million, or $0.08 per basic and diluted share, which is substantially better than prior guidance of a net loss of $0.26 per basic and diluted share. This compares to a net loss of $370,000, or $0.02 per basic and diluted share, in the first quarter of the prior fiscal year. Shares used for computing basic and fully diluted earnings per share were approximately 33.7 million for the first fiscal quarter ended June 30, 2004 and approximately 21.9 million for the first quarter of the prior fiscal year.

For the first quarter, Roxio's digital media software division recorded revenues of $22.0 million and GAAP net income of approximately $6.0 million. Revenues for the Company's Napster division totaled $7.9 million and included $1.1 million from hardware sales of MP3 players to partners. Napster's operating loss, before restructuring, amortization and stock based compensation was approximately $8.1 million.

Roxio ended the first quarter with approximately $63.4 million in cash, restricted cash and short-term investments, which is ahead of prior forecasts.

"We are pleased with our first quarter results, posting a much narrower net loss which significantly exceeded our guidance. Roxio's software business was profitable with continued strong gross margins, and Napster also realized healthy margin improvement. Our efforts to grow Napster's subscriber base continue to gain momentum through exciting initiatives including our expanding university program and recently announced marketing partnership with Best Buy. Napster is gaining increased public exposure based on these and other ongoing promotional activities, and we remain confident in our outlook for the remainder of the year," concluded Mr. Gorog.

Business Outlook

For the second quarter of fiscal 2005, Roxio expects to report total revenues of approximately $25.0 million. Revenues from the software division are expected to be roughly $17.0 million, reflecting typical seasonality at retail. Revenues from Napster are expected to show strong double-digit growth relative to first quarter revenues excluding hardware and are projected to be approximately $8.0 million.

Napster Division Highlights

  • Announced a major strategic marketing alliance with Best Buy that will leverage the power of both brands to drive new subscribers to Napster and deliver a wide range of digital music experiences to Best Buy's entertainment and technology consumer base. This agreement has already resulted in significant television advertising featuring Napster, as well as the debut of the Dave Matthews Band catalog on the Napster music service.
  • Expanded Napster's educational program through agreements with several universities to offer students its digital music subscription program. Beginning this Fall, students at Cornell University , The George Washington University, Middlebury College , the University of Miami , The University of Southern California and Wright State University will have access to Napster. These join existing programs at Penn State University and the University of Rochester , which have been very well received by students.
  • Announced that Napster went live to music fans across the UK , supported by an exclusive, multi-year partnership with Europe 's leading consumer electronics goods retailer, Dixons Group plc. Napster also partnered with The Sun, the UK 's largest selling national daily newspaper, to introduce the first ever online music promotion in a UK national daily newspaper.
  • Launched Napster for millions of fans across Canada . Roxio also announced a multi-year mutually exclusive strategic marketing alliance with Molson, one of the world's largest brewing companies.

About Roxio

Roxio, a division of Sonic Solutions, develops and markets the best-selling digital media software in the world. Roxio offers award-winning software products for CD/DVD burning, photo editing and video editing and has an installed base of over 150 million users. Roxio distributes its products globally through strategic partnerships with major hardware manufacturers, through leading retailers, through Internet partnerships and through direct sales at www.roxio.com. Roxio's parent company, Sonic Solutions (NASDAQ: SNIC; http://www.sonic.com) is the leader in digital media software and provides a broad range of software tools and applications for creative professionals, business and home users and technology partners. Sonic's products range from professional DVD authoring systems and interactive content delivery technologies that are used to produce the majority of Hollywood movies released on DVD, to the award-winning Roxio- and Sonic-branded CD and DVD creation, playback and backup applications that have become the premiere solutions for consumers and business users worldwide. Sonic's AuthorScript® is the de facto standard for CD and DVD burning and formatting and has been licensed by major software and hardware manufacturers, including Adobe, Broadcom, Microsoft, Scientific-Atlanta, Sony, and many others. Sonic Solutions is headquartered in Marin County, California.

Safe Harbor Statement

Except for historical information, the matters discussed in this press release, in particular matters related to the sale of Roxio's software division, future revenue for Roxio's software and Napster divisions; and Roxio's relationship with Best Buy and with other strategic partners are forward-looking statements that are subject to certain risks and uncertainties such as the failure to complete the sale of the software assets, decreased demand for our products and services; flaws inherent in our products or services; intense competition; failure to maintain relationships with strategic partners and content providers; general economic conditions and third party claims, that could cause actual results to differ materially from those projected. Additional information on these and other factors are contained in Roxio's reports filed with the Securities and Exchange Commission ( SEC ), including the Company's Quarterly Report on Form 10-Q as filed with the SEC on August 9, 2004 , copies of which are available at the website maintained by the SEC at http://www.sec.gov. Roxio assumes no obligation to update the forward-looking statements included in this press release.

Sonic, the Sonic logo, Sonic Solutions, Roxio, MyDVD, CineMagic, Plug & Burn, LiveShare, Roxio Easy Media Creator, and AuthorScript are trademarks or registered trademarks of Sonic Solutions or its subsidiaries in the United States and/or other countries. Dolby is a trademark of Dolby Laboratories. All other company or product names are trademarks of their respective owners and, in some cases, are used by Sonic Solutions under license. Specifications, pricing and delivery schedules are subject to change without notice.

Copyright © 2004 Roxio, Inc. All rights reserved. Roxio, the Roxio tagline and Napster are registered trademarks of Roxio, Inc. or its subsidiaries in the United States and/or other countries. All other trademarks used are owned by their respective owners.

                                  ROXIO INC.
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                    (in thousands, except per share data)
                                 (unaudited)

                                                  June 30,         March 31,
                                                    2004              2004
                   ASSETS
    Current assets:
     Cash and cash equivalents                     $19,283           $36,911
     Restricted cash                                   735             1,735
     Short-term investments                         43,395            28,490
     Accounts receivable, net of allowance
      for doubtful accounts of $905 at
      June 30, 2004 and $991 at March 31, 2004      15,566            16,279
     Prepaid expenses and other current assets      15,230             7,480
     Deferred income taxes                             146               150
       Total current assets                         94,355            91,045

    Long-term investment                             3,000             3,000
    Property and equipment, net                      9,063             9,933
    Goodwill                                        91,623            91,723
    Identifiable intangible assets, net              4,565             5,899
    Other assets                                     1,180             1,748

       Total assets                               $203,786          $203,348

         LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
     Accounts payable                               $5,895            $6,085
     Income taxes payable                            2,803             2,841
     Accrued liabilities                            27,403            30,627
     Deferred revenues                               2,707             1,545
     Current portion of long-term debt              15,491            15,420
       Total current liabilities                    54,299            56,518

    Long term liabilities:
     Deferred revenues                                  85                85
     Long-term capital lease obligations               155                68
     Other long term liabilities                     2,268             2,296

       Total liabilities                            56,807            58,967

    Stockholders' equity:
     Preferred stock, $0.001 par value;
      Authorized: 10,000 shares; Issued and
      outstanding: none at June 30, 2004 and
      at March 31, 2004                                 --                --
     Common stock, $0.001 par value; Authorized:
      100,000 shares; Issued and outstanding:
      34,671 shares at June 30, 2004 and 33,543
      shares at March 31, 2004                          35                34
     Additional paid-in capital                    200,737           195,503
     Deferred stock-based compensation              (1,034)           (1,386)
     Accumulated deficit                           (57,728)          (55,088)
     Accumulated other comprehensive income          4,969             5,318
       Total stockholders' equity                  146,979           144,381

       Total liabilities and stockholders'
        equity                                    $203,786          $203,348


                                 ROXIO, INC.
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share data)
                                 (unaudited)

                                                      Three Months Ended
                                                           June 30,
                                                    2004              2003
    Net revenues :
     Consumer software                             $22,048           $23,395
     Online music                                    7,867               781
       Total net revenues                           29,915            24,176

    Cost of revenues :
     Consumer software  (1)                          4,625             6,986
     Online music                                    6,416               620
     Amortization of purchased technologies            696               587
       Total cost of revenues                       11,737             8,193

    Gross profit                                    18,178            15,983

    Operating expenses:
     Research and development  (2)                   6,478             6,934
     Sales and marketing  (3)                       10,390             9,407
     General and administrative  (4)                 4,861             5,277
     Restructuring charges                            (153)            1,536
     Amortization of intangible assets                 576               617
     Stock-based compensation charges                  382               519
       Total operating expenses                     22,534            24,290

    Loss from operations                            (4,356)           (8,307)

    Gain on sale of GoBack product line              1,682            10,592
    Other income, net                                  219                67

    Income (loss) before provision for
     income taxes                                   (2,455)            2,352
    Provision for income taxes                         185             2,722

    Net loss                                       $(2,640)            $(370)

    Net loss per share:
     Basic and Diluted                              $(0.08)           $(0.02)

    Weighted average shares used in
     computing net loss per share
     Basic and Diluted                              33,726            21,864

     (1)  Excludes stock-based compensation charges of $6 and $10 for the
          three months ended June 30, 2004 and 2003, respectively.

     (2)  Excludes stock-based compensation charges of $95 and $151 for the
          three months ended June 30, 2004 and 2003, respectively.

     (3)  Excludes stock-based compensation charges of $85 and $135 for the
          three months ended June 30, 2004 and 2003, respectively.

     (4)  Excludes stock-based compensation charges of $196 and $223 for the
          three months ended June 30, 2004 and 2003, respectively.


                                  ROXIO INC.
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)
                                 (unaudited)

                                                        Three Months Ended
                                                             June 30,
                                                     2004              2003
    Cash flows from operating activities:
      Net loss                                     $(2,640)            $(370)
      Adjustments to reconcile net loss
       to net cash used in operating
       activites:
        Depreciation and amortization                2,552             2,347
        Stock-based compensation charges               382               519
        Bad debt expense (benefit)                     (81)               38
        Loss on retirement of property
         and equipment                                  --               320
        Gain on sale of GoBack product line         (1,682)          (10,592)
        Deferred income taxes                           --             2,372
      Change in operating assets and
       liabilities, net of effects of
       acquisition of Napster, LLC
       and sale of GoBack product line :
        Accounts receivable                            829             4,063
        Prepaid expenses and other current assets   (3,993)              543
        Other long term assets                         661              (228)
        Accounts payable                              (700)           (4,583)
        Income taxes payable                            35            (1,052)
        Accrued liabilities                         (2,512)           (1,729)
        Deferred revenues                            1,247             1,827
        Other liabilities                             (113)              295
          Net cash used in operating activities     (6,015)           (6,230)

    Cash flows from investing activities:
      Purchases of property and equipment, net         (81)           (1,113)
      Proceeds from sale of GoBack product line      2,760            10,250
      Purchases of other intangible assets              --               (63)
      Purchases of short-term investments          (33,601)           (2,792)
      Proceeds from sale of short-term
       investments                                  12,812               350
      Maturities of short-term investments           5,809             2,390
      Transfer from restricted cash account          1,000                --
      Acquisition of Napster, LLC, net of
       cash acquired                                    --           (13,473)
          Net cash used in investing activities    (11,301)           (4,451)

    Cash flows from financing activities:
      Principal payment of capital lease
       obligations                                    (174)             (154)
      Issuance of common stock under
       employee stock plan                             109                --
      Issuance of common stock                           1            20,613
          Net cash provided by (used in)
           financing activities                        (64)           20,459

    Effect of exchange rates on cash                  (248)               (2)

    Change in cash and cash equivalents:           (17,628)            9,776
    Cash and cash equivalents at
     beginning of period                            36,911            36,820
    Cash and cash equivalents at end of period     $19,283           $46,596

    Supplemental cash flow information:
      Cash paid for interest                          $147               $61
      Cash paid for income taxes                      $115            $1,313

    Non-cash disclosure of investing and
     financing activities:
      Unrealized losses on short-term
       investments                                    $(75)             $(46)
      Issuance of common stock                      $4,999           $23,486
      Assets acquired under capital leases            $332               $--
      Adjustment to goodwill resulting from the
       acquisition of Napster, LLC                     $51               $--
      Adjustment to additional paid-in-capital in
       connection with issuance of common stock
       from private equity financing                  $186               $--