Peer-to-peer operation Napster continued to reduce its net loss in the quarter to the end of June. The company reported that net losses for the quarter shrank to $9.6m, compared to $19.7m in the same period last year. Meanwhile, revenues grew 34 per cent year-on-year to $28.1m.

Although the firm claimed to achieve record sales in the June quarter, its subscriber base declined seven per cent over the March quarter as it shifted its strategy to include advertising-supported free music.

“We recently implemented significant changes to Napster.com to create a more optimal balance between our free and paid offerings, which should improve the conversion from free users to paid subscribers," said Chris Gorog, Napster's chairman and chief executive officer.

As of June 30 Napster's total paid subscriber base was 512,000, including 4,000 university subscribers. Excluding these university students, the number of paid subscribers grew 26 per cent year-over-year.

"Our new free service should lead to lower subscriber acquisition costs and improved subscriber retention while building advertising revenue," added Gorog.

Napster also announced a partnership with SunCom Wireless, which will roll out next week in the southeast US, offering over-the-air downloads to handsets and dual-delivery to PCs.