After RealNetworks (NASDAQ:RNWK) impressed the market with its profitable June quarter showing earlier this week, no one was banking on rival Napster (NASDAQ:NAPS) to follow through with its own hit parade. Despite its familiar name, Napster is still early in its tenure as a provider of digital-music subscription services.

However, clocking in with June quarter revenue of $21 million was noteworthy. It was more than just a 167% improvement from last year's top-line showing; it was also better than the $19.9 million that analysts had been projecting. The fact that Napster and RealNetworks are doing a bang-up job in landing new members, despite a lower-priced offering from Yahoo! (NASDAQ:YHOO), is an encouraging sign for the all-you-can-stream digital-music industry.

Napster's loss did widen for the period. Gross margins may have improved from 18% to 31%, but sales and marketing costs nearly quadrupled to $16.3 million. I know it's early and getting the word out is critical, but you won't get too far if you earmark 77% of your revenue for marketing.

The company's balance sheet is a hit. Napster's packing $2.95 a share in cash. It's also got another $0.33 a share backed by its stake in Sonic Solutions (NASDAQ:SNIC), a result of Napster's sale of its Roxio CD software business.

With Napster's stock changing hands at just below $5, the company can be had for just a little more than its balance-sheet greenery. That will serve patient investors well -- as long the company finds a way to outgrow its losses.

Napster has a lot of interesting things going on. Its deal with XM (NASDAQ:XMSR), where listeners will be able to purchase tracks that they hear on the satellite radio service, is promising. Partnerships with companies like Motley Fool Stock Advisor pick Dell (NASDAQ:DELL) and Ericsson (NASDAQ:ERICY) have helped expand its reach into college campuses and cell phones, respectively.

Napster's come a long way in a short time. It started out as a rebel-rousing file-swapping party hub, then did a brief stint as a major-label patsy. In its third incarnation, attempting to combine the notoriety of its first life and the business-minded prowess of its second life, the company may have finally found the perfect balance. As long as Napster is committed to achieving profitability, the third time may truly be the charm.

Here are some other headlines from Napster's past:

  • Napster's deal with XM is feeling even bigger as the satellite radio provider keeps raising its subscriber targets.
  • The battle to win market share in the highly contested digital-music space is one worth fighting.
  • Yes, it lost a ton of money in its March quarter, too.

Digital music is a high-growth industry -- just the sort we often explore in our Motley Fool Rule Breakers newsletter service.

Longtime Fool contributor Rick Munarriz wonders if Napster will have a fourth life if this one falls through. He does not own shares in any of the companies mentioned in this story. He is a member of the Rule Breakers analytical team, seeking out tomorrow's great growth stocks a day early.