Chicago (IL) – The Napster brand may have been diluted over time and it might not draw as much attention as it did back in the early 2000s, but Best Buy bets $121 million on its belief it still has the potential to become a serious rival for Apple’s iTunes. Thanks to the retail chain, Napster will have to battle the might of iTunes with a service that recently struggled with its focus and reported a declining user base.

Retail chain Best Buy today announced that it has acquired online music retailer Napster for $121 million, a move that could be viewed as an attempt to create a viable competitor to Apple's online media store. This acquisition values Napster at $2.65 a share, as opposed to its Friday closing price of $1.36. The deal is expected to close in the fourth quarter. Best Buy confirmed it will retain all 140 Napster employees as well as its CEO Chris Gorog and other senior executives. The retail chain does not plan to relocate Napster's Los Angeles headquarters.

So, why Napster? According to its president and chief operating officer Brian Dunn, Best Buy intends to "use Napster's capabilities and digital subscriber base to reach new customers with an enhanced experience for exploring and selecting music and other digital entertainment products over an increasing array of devices." In other words, Best Buy wants piece of the digital entertainment action.

Napster brings a big brand to the table, a catalog of about 6 million DRM-free music tracks and 708,000 paying subscribers as of July 31 of this year. There is no question that the Napster brand still attracts attention, even if today’s Napster has nothing in common with the famous Napster of the late 1990s and early 2000s. Originally founded by Shawn Fanning, Napster went through a fierce lawsuit by the RIAA, was sold in May 2002 to Bertelsmann and in November 2002 to Roxio for $5.3 million. Roxio was created from Adaptec’s software group and built its music business from Napster’s remains as well as Pressplay, which the company acquired as well.

In 2003, Roxio was under tremendous financial pressure, sold its software business (including software such as Toast) to Sonic Solutions and renamed itself to Napster. While Napster has remained one of the very few rivals of iTunes, it never got enough traction to sustain itself. In early August, Napster reported that its sales were declining and its subscriber base had dropped from 760,000 to 708,000 paid subscribers in the second quarter of this year.  The net loss for the quarter was $4.4 million.

Napster launched its a la carte download services in May, offering DRM-free tracks compatible with iPods and iPhones, and the largest library of independent music. Back then, the company said its store was "50 percent larger than any other MP3 store." Such claims were not enough to create a compelling case for the service, and the Best Buy acquisition may be able to help Napster’s marketing and reach.

However, we do not believe that Best Buy has intentions to specifically knock down iTunes. Napster’s music service ended its fiscal 2008 with sales of $127.5 million, an increase of 15% over the previous year, but at a $16.5 million loss (an improvement compared with a loss of $36.8 million a year ago.) There is a constant improvement going on and fits well to the current industry trend that shifts away from physical media sales and towards media downloads. Compared to other players in the market, such as Wal-Mart, Best Buy had virtually nothing to offer in this space and buying Napster catapults the company right into the premier league of online music sales. The acquisition should also be seen in the light of the DECE announcement, which plans to create a media platform spec to enable consumers purchase, play and share media. Best Buy is the only retail company among the founding members of this group – and now the only company that offers digital music content via downloads. 

platform independent?

Sep 16, 2008 08:42     

I tried using Napster before but it only works with Windows. I use eComStation. http://www.ecomstation.com It would be nice to be able to download music with a non-Win pc. This would make Napster more appealing to more people.
TomLeeM/BigWarpGuy report abuse vote down vote up Votes: -2

re: platform independent?

Sep 16, 2008 15:02     

Yeah maybe the can get some of that massive 8% market share apple has...
Ricko report abuse vote down vote up Votes: +0

napster

Sep 16, 2008 19:30     

napste is dead...RIP. it's only good when it's free.
andy report abuse vote down vote up Votes: -1