Napster is shedding cash like no other and top execs say it is going to struggle to stay in business. It was a breakthrough deal that would have put the Napster kitty on millions of Hewlett-Packard computers. But in the days leading up to Napster's relaunch in late October, HP suddenly -- and without explanation -- returned the $250,000 check and canceled the agreement to install a link to Napster's online music service on its computers. Worse, in January, Hewlett-Packard announced a surprise partnership with Napster rival Apple Computer to feature the iTunes Music store on its computers and sell HP-branded iPod music players. Neither HP nor Napster's parent company, Roxio, would comment on the soured deal, whose details were confirmed by sources familiar with the agreement. But its collapse is just one of several setbacks since the reintroduction of Napster, the pioneering song-swapping renegade, as a paid music service. And not only is Napster losing money, but top executives, too, have left, among them the company's president, chief financial officer, vice president of programming and head of corporate communications, not to mention a key board member. Last Wednesday, Roxio began laying off people at its Napster division. A Roxio spokeswoman said the company was ''eliminating redundancies in the organization'' but declined to say how many had lost their jobs. And while Napster can legitimately claim to be the second-most popular online music service, information provided by insiders at two of the major music labels shows it selling only about a quarter the number of downloads from their artists as Apple's market-leading iTunes store. Napster declined to release download figures. ''I think it's a very competitive market with very ugly economics,'' said Steven B. Frankel, managing director of Adams, Harkness and Hill, a Boston investment bank. ``There's just no money in the download business.'' Napster 2.0 launched with a celebrity-studded bash at The House of Blues in Los Angeles and with bold pronouncements from Chairman and CEO Chris Gorog, who hailed the reborn Napster as the best-known brand in online music. The reality of reincarnating the one-time bte noir of the music industry as a legitimate music service proved more sobering. Napster lost $15 million in its first two months of operation, and the most recent sales data, reported to two of the major music labels, show it having an estimated 12 percent share of the download market, compared to Apple's 56 percent. Analysts estimate Napster's market share at 15 to 20 percent. Perhaps more telling is the state of Napster's subscription business, which is widely perceived as more lucrative than selling 99-cent songs. That's key for a service like Napster, which, unlike Apple, derives no income from the sale of a branded music player. Napster declined to provide specific subscriber numbers for its service, aside from noting that downloads and subscriptions each contributed equally to Napster's $3.6 million in revenue for the last three months of 2003. That means Napster has attracted about 90,000 subscribers in its first two months -- behind RealNetworks' Rhapsody service, America Online's MusicNet and MusicMatch. Gorog resists comparisons with other subscription services because of incongruities in the way subscribers numbers are reported, but he expects the business to mature, he said, as users realize that it's cheaper to pay a flat fee for access to 500,000 tracks than to pay $1 a song. Source: Knight Ridder News Service