Electronics superstore Best Buy announced its decision to acquire online music provider Napster for approximately US$ 121 million. The transaction is expected to close by the end of this year. Apple, with its iPod and iTunes currently holding a big chunk of the digital music market, may soon see some competition.Los Angeles-based Napster currently offers streaming music, subscription music services and the ability to purchase single tracks, albums and transfer them to mobile devices. Along with buying the Napster brand, the acquisition would also include Napster's 700,000 existing subscribers, its web-based customer service and mobile capabilities.
Back in the day Napster was seen as a digital music revolution pioneer, when it launched in the late 1990s, offering a free way to share digital music files. The original Napster was shut down after the music industry, spearheaded by the RIAA, filed a lawsuit claiming copyright infringement and illegal distribution of copyrighted materials.
Quest for Mobile Dominance
Best Buy’s bid to acquire Napster is a clear sign of its quest for mobile dominance, as with Napster it will be able to boost its mobile music offering. However, the benefits are mutual, as the once illegal Napster has been financially struggling lately and could use some help. Napster’s 2008 revenue is estimated at US$ 127.5 million, which is a jump of 15% over the previous year, but still is lower compared to prior years.
The Napster decision comes on the heels of Best Buy opening Best Buy Mobile stores in more than 900 of its U.S. retail stores last month. Best Buy Mobile, which is essentially a store-within-a-store offering mobile phones, plans and accessories, was part of a two-year conversion for Best Buy.
Dave Morrish, executive vice president of connected digital solutions at Best Buy, is optimistic: "We can foresee Napster acting as a platform for accelerating our growth in the emerging industry of digital entertainment, beyond music subscriptions.”
Best Buy also offers its own digital music service, but plans to keep the Napster name for the combined offering. Best Buy's existing service is the result of partnerships with RealNetworks and SanDisk. They teamed up in 2006 to offer a digital music subscription service and a portable digital media player.
Competing with Apple
Best Buy recently became the first retailer outside of Apple and AT&T stores to sell the coveted Apple iPhone 3G.
While Best Buy already has a working partnership with Apple, the Napster buy would help it to better compete with Apple's iPod and iTunes music service, which currently holds about a 70% stake of the digital music market.
The Napster deal would also position Best Buy to be a stronger competitor of Amazon that recently added the digital music offering Amazon MP3 to its product portfolio.
Best Buy said it plans to use Napster and its digital music offerings to reach new customers over a wider breadth of devices.