Napster (Nasdaq: NAPS) reported its Q2 numbers, and it still keeps plugging away, with some surprises: its losses narrowed as it generated record revenues and managed to lower customer acquisition costs. It has losses of $4.2 million this quarter, after a loss of $9.8 million in the year-ago period. Revenues increased 15 percent to $32.3 million from $28.1 million in the year-ago quarter.

Napster said it has been scaling back marketing expenditures and, as a result, lowered its subscriber acquisition spending to an all-time low, reports AP. But Napster has about 770,000 subscribers. Excluding a seasonal decrease of 40,000 university subscribers, its paid subscriber base declined 2.5 percent during the quarter. The subscriber decline was partially offset by the addition of mobile service subscribers, the company said. More in release.

During the conference call music capable handsets were described as having “the potential to be a freight train for the adoption of digital music”, and it’s clear Napster is betting on convergence meaning people will only carry one device with them—and the majority of those will be non-iPhone devices which Napster could distribution through. The experience with DoCoMo: Since the launch of an integrated music and billing service on DoCoMo Napster has seen significant uptake of mobile subscribers compared to PC subscribers, so that now mobile subscribers in Japan (for all types of music, including ringtones and so on) outnumber the number of PC only subscribers in Japan. Napster Mobile is live with 9 carriers across Asia, US and Europe, with the latest addition being Swisscom Mobile.

10Q Form | Conference Call