Best Buy nabs Napster for $121 million

Electronics retailer Best Buy is acquiring the Napster music service--its entree into the hot online-music sector.

The two companies on Monday announced a merger deal in which Best Buy is to launch an all-cash tender offer for outstanding Napster shares at $2.65 apiece, with the full acquisition valued at $121 million. That total value represents $54 million net of approximately $67 million in cash and short-term investments in Napster as of June 30.

In Napster, retail heavyweight Best Buy is getting itself a one-time contender in the field of online entertainment. A decade ago, Napster was virtually synonymous with digital music--a notoriety that earned it the wrath of the music industry. That contributed to its demise, along with the rise of alternatives such as Kazaa and LimeWire.

Napster eventually reinvented itself as a subscription service, and it says it now counts 700,000 subscribers.

Best Buy plans to use both Napster's technological capabilities and its subscriber base to reach consumers looking to explore digital music and other forms of entertainment "beyond music subscriptions" over a variety of electronic devices. The acquisition, Best Buy contends, will give it extra oomph in dealing with record labels, movie studios, and hardware makers.

But the digital-music stage is already crowded with stars ranging from Apple's iTunes powerhouse to Amazon MP3. In the very near future, meanwhile, the social-networking scene is expecting not one, but two, big debuts: the likely arrival this week of MySpace Music and the possible unveiling of a music strategy for Facebook.

Los Angeles-based Napster has 40 employees. For its fiscal 2008, which ended in March, it reported a loss of $16.5 million on revenue of $127.5 million.

The deal is expected to close in the fourth calendar quarter. Napster CEO Chris Gorog and other senior managers have signed deals that will keep them with the company after the acquisition is completed.

[Alex Alexzander]

Smart move by Best Buy. I am frankly amazed more companies don't see the writing on the wall. Digital Download is the future. Will Napster be successful is another matter. But to compete at all, you need an online service.

Alex Alexzander

[lodoss900]

How does a online music service lose 16.5 million?

[ballssalty]

They only have 40 employees???? No wonder their software sux.

[David Dudley]

Quantity of employees working on a piece of software does not necessarily translate into the relative quality of a product. Moreover, you have no idea what combination of employees versus contractors actually worth on the product. Lastly, iTunes which likely has a large amount of development and QA focused on the product is altogether a sluggish piece of software and is only getting more bloated and latency prone as it rots on the vine.

[NewMediaMonkey]

I wonder what this means to bestbuy supplying Apple products? Does best buy intend to compete/sell a product in direct competition to their own future business model/direction?

[dragonsky1]

Best Buy has already been doing this for sometime. They already have an online music store that they operate in conjunction with Rhapsody. Now the big question is what happens to that site.

[David Dudley]

While it's interesting that the Napster name has changed hands yet again, what would be more interesting is to look under the hood at subscriber metrics to understand why the business had to be sold. The business was probably sold due to a combination of issues: lack of subscriber growth, attrition & churn numbers, potentially high payout to labels (aka royalty fees), user acquisition charges (CPA to affiliates, SEM and other advertising related charges). I doubt that Best Buy will be pushing the subscription side of Napster as it's clear that PlayForSure is on life support with even Microsoft abandoning it and the sales of PlayForSure compatible devices not even worth mentioning. Rather, it is likely that Best Buy will use Napster and their various contracts with the labels to create their own digital music offering akin to what Amazon offers. CD sales have been tanking for years and Best Buy absolutely knows this, yet there is revenue still out there in the music world and the belief is that it is via digital sales. By buying Napster, they no longer have to create their own offering and now have a huge leap forward in deploying a competitive digital music product that they can use to increase revenue attributed to music, an area that has probably been falling further quarter over quarter.

[UITD]

What the hell for? Napster sucks. iTunes sucks. The FORMAT sucks. There isnt one song that I'd spend my hard earned cash on unless, that is, you want a copy of a xerox of a copy, etc, etc. Most people dont give a crap and have no standards.

[AppleSuxLeo]

Y ou are so right...kids now days think this is "high fidelity" LOL

[blacknebraskan]

While Napster as a service pales in comparison with Itunes, it gives Best Buy additional sales opportunities. Just imagine a scenario where people receive Best Buy gift certificates, and doesn't fully utilize it: They can just buy a couple of songs. If BB is lucky a few of those casual purchasers will become routine customers. But the most important aspect is it gives them a presence in the market.

[benjaminstraight]

I wonder if that teenage kid that started Napster is now worth more than Lars Ulrich from Metallica

[Universal_Indie_Records]

Well stated David Dudley!

[HighwayHome]

I'm also not particularly impressed with the quality of online downloads. When you've heard the vinyl countless times, the compressed file versions just don't compare. However, the younger generation does not have this frame of comparison and think they are getting a high quality sounding product.

[dragonsky1]

I wonder what will happen to the Best Buy Digital Music store they already operate. I imagine it will be shut down, and those customers either migrated to Napster or Rhapsody (which operates BB's digital music store.)

[AppleSuxLeo]

Ah...such fond memories of pulling all-nighters in late `99-200 to get everthing worth getting. Most music is crap now...but if I find something I need , I go right to Amazon MP3 !

[idfubar]

Hopefully the legal issues related to digital music are resolved such that Napster can be returned to its former glory (it would really only take some enlightenment with respect to compulsory licensing, which might happen soon in the U.K.)... maybe Best Buy can offer downloads of CDs which are purchased in-store in the meantime (thus extending Napster's offerings to all of the major labels).

[sschifrin]

I'm not sure I understand all the head-scratching over this purchase. A very long time ago, I worked for a rep company that handled Columbus shock absorbers, in a market dominated by
Gabriel and Monroe. When I asked the boss about the move to rep Columbus, his reply was that the shock business is a $3Billion business (1977 money), and that a 5% dent in that market would reap them a pile of cash.

Best Buy/Napster doesn't have to unseat iTunes to be successful. They stand to add a legitimate name to a somewhat-tainted brand, and start sucking down cash in little gulps, at the cost of a very small investment. I've already used the service. In my opinion, it's as good as the Amazon service, and the quality of the music files is the same.

-shs-

[gd1294]

Down loaded music just doesn't sound as good as the cd. You are always going to have to have cd or some physical formate because if your computer crashes say good buy.