NEW YORK (Reuters) - Online music service Napster Inc. raised its forecast for fiscal third-quarter revenue on Thursday, driven by a better-than-expected increase in subscribers.

Napster, which hired investment bank UBS in September to explore a sale, said it anticipates reporting more than $28 million in revenue for the quarter ending December 31, with 48,000 subscriber additions taking total paid world subscribers to 566,000.

The company had previously estimated revenue at $27 million. Analysts had, on average, forecast revenue of $27.4 million, according to Reuters Estimates. Napster shares were down 2 cents, or 0.5 percent, at $3.80 in morning trading.

Napster Chief Executive Chris Gorog said the company had significantly improved its strategic position with international expansion to Japan and mobile phone partnerships.

Subscribers downloaded 500 million songs and 700 million music streams in calendar 2006, Napster said.

The music download service competes with dominant market leader Apple Computer Inc.'s iTunes digital store, which accounts for over 80 percent of music download sales in the United States.

ITunes, which has sold over 1.5 billion songs since its 2001 launch, is only fully compatible with Apple's hugely popular iPod digital music player, which is also the leader in its market sector.

Other music download services, including Napster, have struggled to compete with Apple's iTunes as their services are not compatible with the iPod.