A Pitstop On The Information Super Highway

Best Buy nabs Napster

September 16th, 2008 Posted in What's Hot Now

by Kim Peterson

Best Buy scored today by picking up the Napster digital music service at a bargain-basement price. It’ll use Napster to launch its own digital music sales and subscription service, competing with RealNetworks and others.

The purchase price was about $121 million in cash, but since Napster already has $67 million in cash and short-term investments, Best Buy is only out $54 million. It’s a sweet deal, but opens up a big question: Can Best Buy turn Napster into a service that customers want?

Best Buy shares are down less than 1% to $44.43. Napster shares have soared 85% today to $2.52.

Napster has 700,000 music subscribers, and Best Buy doesn’t appear to be making any immediate changes for them. The biggest change will be in Best Buy stores, where I assume the company will play down its partnership with RealNetworks’ Rhapsody service in favor of pushing Napster.

Napster costs about $13 a month, and gives customers access to 5 million songs. Downloading them costs more money.

The service doesn’t directly compete with Apple’s iTunes, since iTunes sells song downloads and not subscriptions. And since Apple and Best Buy recently announced an iPhone sales deal, I wouldn’t expect Best Buy to step on Apple’s toes too much. Nope, Best Buy will try to go after the subscription market dominated by RealNetworks. The transaction will close in the fourth quarter, and Best Buy will be scrambling to have something ready before the holidays.

If Best Buy can keep the 700,000 subscribers, beef up single-download sales and cut operating costs, then it made a smart move today in buying Napster.

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