Roxio Second Quarter Results Exceed Expectations

Subscriber Revenue Contributes 73% to Napster Music Sales

Santa Clara, California - (November 3, 2004) - Roxio®, a division of Sonic Solutions® (NASDAQ: SNIC), the leader in digital media software, today reported financial results for its fiscal second quarter ended September 30, 2004.

Chris Gorog , Roxio's Chairman and CEO, said, "We are pleased to deliver results that exceeded our sales and earnings guidance while maintaining a tight control on costs. Napster revenues continued to gain momentum, growing 18% from the previous quarter, while online music revenue excluding hardware sales increased 33% sequentially. Our premium subscriber base grew substantially during the quarter, with subscriber revenue growing to 73% of total music revenue, which continues to validate our vision that subscriptions are the future of digital music. We are also very pleased to have debuted the first portable online music subscription service on October 12 th as 'Napster To Go' became available with the Windows Media Player 10 plug-in."

For the second quarter, revenues for the Company's Napster division grew approximately 18% to $9.3 million from $7.9 million in the previous quarter. Revenues of $18.1 million from the software division also exceeded the Company's guidance.

Total net revenues for the second quarter of fiscal 2005 increased to $27.4 million compared to $22.8 million in the second quarter of the prior fiscal year. Total net loss for the quarter was $15.3 million, or $0.44 per basic and diluted share, significantly ahead of the Company's prior guidance of $0.55 per basic and diluted share. This compares to a net loss of $11.9 million, or $0.43 per basic and diluted share, in the second quarter of the prior fiscal year. Shares used for computing basic and fully diluted earnings per share were approximately 34.7 million for the second fiscal quarter ended September 30, 2004 and approximately 27.6 million for the second quarter of the prior fiscal year.

Roxio ended the second quarter with approximately $61.9 million in cash, restricted cash and short-term investments.

Business Outlook

For the third quarter of fiscal 2005, Napster revenues are expected to grow strongly to approximately $11 million, based on subscriber acquisition initiatives and holiday period seasonality. The Company is also revising upwards its full-year revenue guidance range for Napster to $35 million to $40 million from a previous range of $30 million to $40 million.

The proposed sale of Roxio's software division has received Hart Scott Rodino ( HSR ) clearance and Roxio expects the transaction to be completed by the end of the fiscal year pending Roxio stockholder approval. As previously disclosed, upon the successful completion of the proposed transaction, the Company's name will be changed to Napster, and the Company's stock will trade on the Nasdaq National Market under the symbol "NAPS".

Napster: Recent Highlights

  • Announced that Napster To Go TM , the world's first portable music subscription service, is available for users of the new AT&T Wireless-based Audiovox SMT 5600 Smartphone, enabling the only mobile phone in the U.S. market to allow music fans to seamlessly transfer and play an unlimited number of full-length songs on the go for one low monthly price of $14.95.
  • Became the first and only major digital music service to offer the option of using PayPal to purchase monthly subscriptions or individual tracks and albums.
  • Launched a preview version of Napster To Go, available through the Napster link within the Microsoft Windows Media Player 10's new Digital Media Mall. Several portable devices, including those from Creative Labs and iRiver currently support Napster To Go, and devices from Gateway, Samsung and others are expected before Chris tmas 2004.
  • Introduced Napster Media Room Edition, available today as a featured service in the new Windows XP Media Center Edition 2005 PC.
  • Partnered with D-Link, the global leader in consumer network connectivity, to offer a broad range of radio streaming and music downloads on its best-selling D-Link MediaLounge Wireless Media Player.

Announced an agreement with the Army and Air Force Exchange Service (AAFES) that gives all branches of the United States military -- Army, Navy, Air Force, Marines and Coast Guard -- access to the innovative Napster 2.0 music service through the CentricMall.com Web site.

Form 10-K Amendment

Roxio plans to file an amendment to its form 10-K for the year ended March 31, 2004 in November to correct the valuation of a warrant issued in May 2002 and the purchase accounting related to the acquisition of MGI Software in January 2002. The revisions will increase fiscal 2003 net losses from the software division by $1.7 million and decrease fiscal 2002 net income from the software division by $123,000. These revisions will have no impact on the statements of operations or cash flows for the six month period ended September 30, 2004 or for fiscal 2004.

Additional Information

Roxio, Inc. investors and security holders are advised to read the proxy statement provided in connection with the 2004 Annual Meeting of Stockholders when it becomes available and other relevant documents filed with the Securities and Exchange Commission, because they will contain important information on the proposed sale of Roxio's software division. You will be able to obtain documents filed with the SEC free of charge at the SEC's web site at www.sec.gov . In addition, you may also obtain documents filed by Roxio, Inc. by requesting them in writing from Roxio, Inc., 455 El Camino Real, Santa Clara , CA 95050 , Attn: Secretary.

Conference Call Information

The Roxio second quarter teleconference and webcast is scheduled to begin at 1:30 p.m. , Pacific Time, on Wednesday, November 3, 2004. To participate on the live call, analysts and investors should dial 800-240-4186 at least ten minutes prior to the call. Roxio will also offer a live and archived webcast of the conference call, accessible from the "Investor Relations" section of the company's Web site at http://investor.roxio.com.

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 Napster division; and Roxio's relationship with 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.

                                     ROXIO INC.
                       CONDENSED CONSOLIDATED BALANCE SHEETS
                       (In thousands, except per share data)
                                    (unaudited)
   
                                                   September 30,       March 31,
                                                        2004              2004
                      ASSETS
       Current assets:
         Cash and cash equivalents                    $20,580           $36,911
         Restricted cash                                  735             1,735
         Short-term investments                        40,600            28,490
         Accounts receivable, net of allowance for
          doubtful accounts of $679 at September 30,
          2004 and $991 at March 31, 2004              11,899            16,279
         Prepaid expenses and other current
          assets                                        9,844             7,480
         Deferred income taxes                            989               996
           Total current assets                        84,647            91,891

       Long-term investments                            3,200             3,000
       Property and equipment, net                      7,885             9,933
       Goodwill                                        89,548            89,516
       Identifiable intangible assets, net              3,382             5,899
       Other assets                                     1,036             1,748

           Total assets                              $189,698          $201,987

             LIABILITIES AND STOCKHOLDERS' EQUITY
       Current liabilities:
         Accounts payable                              $7,030            $6,085
         Income taxes payable                           2,848             2,841
         Accrued liabilities                           27,559            30,627
         Deferred revenues                              3,480             1,545
         Current portion of long-term debt             15,271            15,420
           Total current liabilities                   56,188            56,518

       Long term liabilities:
         Long-term capital lease obligations              119                68
         Other long term liabilities                    2,237             2,381
           Total liabilities                           58,544            58,967

       Stockholders' equity:
         Preferred stock, $0.001 par value;
          Authorized: 10,000 shares; Issued and
          outstanding: none at September 30, 2004          --                --
          and none at March 31, 2004
         Common stock, $0.001 par value;
          Authorized: 100,000 shares; Issued and
          outstanding: 34,787 shares at
          September 30, 2004 and 33,543 shares
          at March 31, 2004                                35                34
       Additional paid-in capital                     201,555           195,970
       Deferred stock-based compensation                 (734)           (1,386)
       Accumulated deficit                            (74,869)          (56,916)
       Accumulated other comprehensive income           5,167             5,318
         Total stockholders' equity                   131,154           143,020

       Total liabilities and stockholders' equity    $189,698          $201,987


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

                                          Three Months Ended   Six Months Ended
                                              September 30,       September 30,
                                             2004      2003      2004      2003
       Net revenues :
         Consumer software                 $18,115   $21,280   $40,163   $44,675
         Online music                        9,315     1,518    17,182     2,299
           Total net revenues               27,430    22,798    57,345    46,974

       Cost of revenues :
         Consumer software  (1)              4,486     5,665     9,111    12,651
         Online music                        7,477     1,175    13,893     1,795
         Amortization of purchased
          technologies                         703       604     1,399     1,191
           Total cost of revenues           12,666     7,444    24,403    15,637

       Gross profit                         14,764    15,354    32,942    31,337

       Operating expenses:
         Research and development  (2)       7,026     8,600    13,504    15,534
         Sales and marketing  (3)           14,439     9,353    24,829    18,760
         General and administrative  (4)     7,532     7,438    12,393    12,715
         Restructuring charges                  73       557       (80)    2,093
         Amortization of intangible assets     537       655     1,113     1,272
         Stock-based compensation charges      299       519       681     1,038
           Total operating expenses         29,906    27,122    52,440    51,412

       Loss from operations                (15,142)  (11,768)  (19,498)  (20,075)

       Gain on sale of GoBack product
        line                                    --        --     1,682    10,592
       Other income, net                       (16)      230       203       297

       Loss before provision for income
        taxes                              (15,158)  (11,538)  (17,613)   (9,186)
       Provision for income taxes              155       342       340     3,064

       Net loss                           $(15,313) $(11,880) $(17,953) $(12,250)

       Net loss per share:
         Basic and Diluted                  $(0.44)   $(0.43)   $(0.52)   $(0.49)

       Weighted average shares used in
        computing net loss per share
         Basic and Diluted                  34,729    27,641    34,230    24,768


       (1)  Excludes stock-based compensation charges of $5 and $10 for the three
            months ended September 30, 2004 and 2003, respectively, and $11 and
            $20 for the six months ended September 30, 2004 and 2003,
            respectively.
   
       (2)  Excludes stock-based compensation charges of $70 and $142 for the
            three months ended September 30, 2004 and 2003, respectively, and
            $165 and $293 for the six months ended September 30, 2004 and 2003,
            respectively.

       (3)  Excludes stock-based compensation charges of $63 and $128 for the
            three months ended September 30, 2004 and 2003, respectively, and
            $148 and $263 for the six months ended September 30, 2004 and 2003,
            respectively.

       (4)  Excludes stock-based compensation charges of $161 and $239 for the
            three months ended September 30, 2004 and 2003, respectively, and
            $357 and $462 for the six months ended September 30, 2004 and 2003,
            respectively.