Rumors have been circulating for some time that Napster, which has been losing money for years, had placed itself on the market in the hope of attracting a buyer. Today, electronics retailer Best Buy announced that it would buy Napster for a total of $121 million, a significant premium over the company's value based on either stock price or assets. Napster had hoped to trade on its brand recognition in any sale and it appears to have succeeded: Best Buy put a $54 million value on the name.
Napster shot to prominence as one of the first P2P music file-sharing services but never seemed to have a strong business plan, a problem exacerbated when lawsuits eventually forced it to get out of the P2P business. The company has tried to stay in the music field, primarily by offering a subscription service both to individual users and to college campuses. Its executives swore that Napster's leftover brand recognition would help it find a following, but the business itself—a subscription-based music service—proved to be both highly competitive and less popular than purchased music. As a result, the company has been hemorrhaging money for years.
With the record labels coming around to the idea of selling unprotected downloads, Napster saw another option for moving music and opened its own MP3 download store. The à la carte music market is also highly competitive, one that Apple dominates despite its mostly DRMed music and where Amazon brings significant brand recognition to its DRM-free store. Napster's success with the new venture was anything but guaranteed, but it appears that offering the MP3 store may have been key to finding a buyer.
Best Buy makes its money by moving hardware, and it isn't particular about who makes that hardware. In fact, its home page features a banner ad for the iPhone 3G, made by one of Napster's competitors. DRM-free MP3 files have the advantage of working with any music player out there, and so may have seemed like a good match for Best Buy.
Still, it appears that, like Napster itself, the retailer is hoping that the name recognition hangover from the P2P days will be worth something. Best Buy actually offers MP3 downloads currently, but the fact has barely registered in the marketplace. A clear indication comes on the company's download web page, which now offers a prominent link to eMusic and the page where Best Buy sells iTunes gift cards. That could change, however, if the company decides that the Napster brand gives it an opportunity. Best Buy's extensive retail presence and marketing budget would give it an opportunity to push the Napster brand in a way that the formerly-independent company could only dream of and make a run at other players in the online music business.
In a further reason to be skeptical of the deal, Reuters is reporting that the existing Napster management, which never managed to do much with the company, have all signed on to work with Best Buy. Best Buy's purchase price of $2.65 a share is nearly double Napster's Friday trading price, making the deal a rare bit of good news in today's troubled financial markets.Posted on