Best Buy announced today that it has acquired Napster for $121 million in cash. The company said that it will keep Napster’s executive team and will leave the Napster service and its estimated 700,000 users in place without changing much in the near-term.
During the 2008 fiscal year ending March 31, Napster had revenue of $127.5 million, and a loss of $16.5 million. The loss was an improvement over its last fiscal year, though, when it lost $36.8 million.
Best Buy ostensibly believes that it can eventually make Napster turn a profit or, at the very least, provide a service that is valued by its customers (Best Buy inked a Napster distribution deal with the company’s then-parent company Roxio for $10 million in 2004). But how does acquiring Napster help the company in any way?
Napster’s competition is simply too fierce and too far ahead for the once-popular service to stay relevant.
iTunes is the world’s largest music store and there’s no sign of that service losing the top spot any time soon. Worse, Amazon’s DRM-free MP3 store is coming on strong and now that MySpace is starting to get into the music game with free ad-supported streams, there’s little room left for Napster to cement itself in the market.
So where does Napster fit into that equation? Granted, it’s still servicing 700,000 customers and its revenue is quite high, but how much longer can it compete in an environment where at least three services are better and its user-base is minuscule compared to its competitors’?
Napster’s business model is simply too similar and too out-dated for it to compete in this market. The company uses a subscription-based model to let you download songs and also offers freenapster.com for those that want to stream music for free online. Of course, the only problem is the songs sound awful and paying $12.95 per month isn’t worth it to most users, given the success of iTunes and Amazon’s store.
And with new business models on the way from MySpace where it will try ad-supported streams, how can Napster regain its status as the most popular service in the industry by maintaining status quo?
Under the guise of “improving” itself, Best Buy has engaged in a mercy acquisition of Napster in the hope that somehow it will materialize into something worth using. Napster was always the haven for illegal downloads and ever since it went legit, it lost its allure and fewer people have found reason to use it.
Best Buy just wasted $121 million.
Well, if you’re going to waste a few million dollars, at least you get a lot of PR when it’s on Napster.
ha..ha… I just wish someone would have told me about this before it happened, because if your going to throw away $121 million dollars all I ask is can you call me first… ahh Best Buy, what in the world where you thinking?
They could have just gave me 50 million and I would have built them a music site from the ground up that would get them much more love and profits then Buying Napster ever will…
Gang, Napster has about $195,000,000 in accumulated losses that Best Buy can use to reduce taxes on future profits. As such, the deal pretty much pays for itself AND Best Buy acquires all of the following for free:
* A fully functioning business
* An incredible brand name
* 700,000 customers
* Cutting-edge technology
* Some pretty smart people
Looks like Best Buy isn’t so stupid after all….But then again, TechCrunch should have already known this.
Regards,
George
Sorry, forgot to include the fact that Napster has $75,000,000 in cash and current assets.
Now Best Buy looks like a complete genius.
Don, did you even look at the balance sheet?
Companies have balance sheets? Where I can find this so-called balance sheet of Napster.
No joke.
LOL, it’s funny!
On that note, where the hell is Amazon MP3 for the other countries, they announced in Jan they would be rolling out over the course of the year…. over half the bloody year has gone!
Don’t forget that Napster’s 700K customers are paying for a music on a subscription basis, so comparing it to Apple’s numbers is apples & oranges (no pun intended). Of course Apple is much, much larger even with the difference in their business models but shouldn’t you have at least mentioned Rhapsody in this analysis?
Now this is News. Sounds like they just bought a popularized domain name for alot of money. can Napster become a wholesome Best Buy family channel for all there digital entertainment. watch out. with all the negpub they still sold for a mint while losing money. Getting a premium digital footprint on the net can be expensive and this shows there are companies that can afford it.
DownloadLocator
I like this buy. I just hope that they can create a new product and see what they can do with it. The more people there are in this arena right now the better for the fledging music industry.
Finally, some positive view on this. Thanks!
Time for a Re-Brand.
“Best Buy just wasted $121 million.” - only Arrington can get away with such crude analysis and that’s because a) he has credibility, b) he’s often right and c) his articles are sometimes thought provoking so we forgive him anyway.
What a stupid “know-all” article that tells us nothing new except that Don doesn’t understand where the music industry is heading. Everything will be either subscription based or free in 5 years.
Bring back Duncan Riley!
In other news Ford buys Studebaker.
Best Buy will do whatever it can to maximize its marketing efforts of Napster in store and on commercials and will make sure its investment has a future. I’m curious to see the changes Napster will create to stay competitive and I personally like a subscription based option. If itunes had it, I would sign up in a second. The Napster songs can’t be played on ipods so for now they will have to reinvent themselves in order to become a bigger player. They are successful now and have a large subscriber base to work off of. Time will only tell if Best Buy’s investment pays off.
Craig
http://www.budgetpulse.com
Astounded ! Napster for $121 Mn…Really ?
Makes a lot more sense than the money they wasted buying the Musicland Group in 2000 when it was obvious music was going digital. Or the millions they spent creating a parallel music site (Flash-based) that never drew any customers and was abandoned in no time flat..
Strip out the cash. It’s $54 million
Good point. Forgot to consider that. Now, factor in the $195,000,000 in accumulated Napster losses that Best Buy can use against future profits and suddenly BB is back to being a smarter company than techie, non-business oriented TC readers and writers.
George
Don’t understand the play for Best Buy unless they got the decades confused..
I completely agree with the suggestion for a rebrand. When I think of Napster, I am already imagining a “once was” company that is now defunct. They need to give Napster a new vibe and the certainly need to change the model.
I think going more the route of Rhapsody is the way to go. If they could create a great subscription base and expand their licensing, they would be well on their way. It would be even better to see them create a subscription market for Mac / OS X. Rhapsody still does not have Mac support and with the usage of Macs at an all time high, they could coordinate that with a rebrand.
Just my two cents.
“If they could create a great subscription base and expand their licensing, they would be well on their way.”
They have already made the transition to subscription-based.
Don’t forget Apple “was once” itself a little while ago. Then they started putting “i” in front of everything, and look at them now…
So long napster
More like WORST buy
Here’s the way I see it “could” happen…
Right now, Best Buy has a “Digital Music Store” powered by Rhapsody. Essentially the same service as Napster. So, that right there replaces a license fee and increases their revenue per subscriber.
Second, they may have the option to port this into their brick and mortar stores, again not having to worry about the licensing issues.
Best Buy’s in-house sales of physical CD’s has been lagging in recent years. What I envision is best buy replacing their very large inventory and valuable floor space of CD’s with in-store kiosks that allow visitors to listen to and possibly create custom CD’s.
This move would free up revenue by eliminating the supply chain and associated costs with physical distribution of CD’s, plus free up more space for other higher revenue earning products and services.
This obviously is all speculation, but from that perspective it seems like it would be a good move.
Great analysis Troy and they might do this but I disagree on the long-term effectiveness of such a plan. Kiosks in store to make a cd are like kinko’s offering self serve copiers; great in a pinch but really a flat/dying business. Substitutes at home (iTunes) are just too easy and cheap.
Not really if you think in terms of car CD players with no mp3 ability… That’s the market that would be interested
Best Buy would’ve been better having a bonfire and burning that $121 million. What a waste of f*cking money. As Gekko would say, they’re walking around blind without a cane
And I guess you sit on the board of Napster or Best Buy to know all of the details of this?
If you took 5 minutes to look at the Napster Balance Sheet, you’d know exactly why this deal was done and how it is an incredible deal for Best Buy.
Too much “cool” and too little financial sense on TC lately.
GT
What is this balance sheet you can talking about? You will teach me how to read it?
Why won’t people just let Napster die?
I mean it will always be a shadow of it’s former glory by definition of the service, and it’s name has already lost it’s luster.
Let’s be clear, it’s not even the same company, it’s just the napster brand slapped on a music store. All the engineers that worked on napster have since gone elsewhere, either to established sites like iTunes or to their own music sites - snocap, imeem and finetune are the three I can think of.
Lost luster with who? You represent every person in the world? If you are going to make such a statement, at least back it up with some facts and stop spinning.
Another article comparing a subscription music service to a pay-for-each-download service. Yawn. Two different animals. Two different users. Anyone remember MusicMatch? It was merely a subscription streaming service and it had passionately loyal subscribers. At least we can stop comparing two different business models side by side?
It was a 54 million dollar acquisition due to the cash in the bank that Napster has (roughly 65 million). Moreover, this was likely a move to offer their own music service on the Best Buy site rather than having to engineer their own product offering. They can leverage existing contracts and R&D and more easily integrate rather than do all the work to create. I assume that the subscription service is not necessarily what Best Buy was interested in.
Every time I hear about Napster i can´t avoid thinking in this episode of Futurama
http://www.wvchannel.com/view/.....et-parody/
This article also doesn’t say that half of the price is recouped in one day due to the cash balance Napster has. Without ever reading another article you’ve written I would assume you aren’t here for the business side but more for commentary.
Also, iTunes will fail… at some point in time it will be irrelevant if it remains the same. They did nothing but take a twelve-pack and begin to sell by the bottle. Guess what… nothing changed… it is a loss leader to sell little hard drives that come in pretty packages… they make crazy margins on hard drives and lose money or “break even” as they would have you think through cleaver accounting on each song purchased.
iTunes and Apple haven’t brought anything new to the industry… portability was already there, MP3 were already there, someone was already forcing you to have software on your computer to get the songs, “inteligent” shuffle has existed for quite a while, voice recording on a portable has been around since fall of 2005 (IAudio x5)… one thing they did bring was the cool factor - can’t deny that… cool and they have continued the downward spiral for the labels that are dinosaurs trying not to die
I can give you more analysis whenever you want… email me… it will be thorough and really isn’t biased towards any company as I don’t get ad revenue, pub, nothing for my thoughts.
Cheers
- Cannon
Look ma! A Mac hater!
And Ford didn’t do anything to the auto industry ’cause cars already existed right? And search engines already existed so Google really didn’t bring anything to the table, etc… etc…
Whatever…
Look pa! A Mac fanboy!
Henry Ford introduced a new manufacturing process that revolutionized the way cars were made. Apple however has not done anything close to this. As for your Google analogy; Google introduced a more efficient way to search. Google also makes the majority of their revenou from advertising from the search. It’s not like Google ripped off Yahoo’s search engine and put it in a better looking box. You are correct in assuming that I am implying Apple ripped off another company. In fact they ripped off many (for the iPod). The navigation menu for the iPod was stolen from Creative. All Apple did was shove it in a pretty case and mark it up 200%. The point is that without the iPod, the iTunes store wouldn’t even be a consideration in most people’s minds and as other platforms get cheaper and cheaper the iTunes store’s $0.99 price tag will have most people going to less expensive alternatives. The iTunes store will either have to change or it will fester and die. I think Best Buy made a smart move here. With some retooling and a little bit of advertising I am sure Best Buy can change Napster into a very successful subscription based music distribution business.
This is all about freeing up floor space in their brick and mortar stores for other items, such as musical instruments (watch out big box instrument chains) and the instore apple store. They are going to use Napster to build media kiosks.
I wish Wal-Mart had bought Napster.
Sorry, Don, but I don’t agree with your analysis at all. As it was pointed out before, the cash balance on the Napster sheet make the deal far more favourable, they didn’t even pay a revenue multiple, it is a high revenue business compared to, well, everything that shows up at TC 50 and the sorts, and last but not least, it will allow BestBuy to bundle hardware with Napster subscriptions and generate an interesting amount of subscriptions just from that.
I REPEAT .. IT’S $54 MILLION not $121 MILLION . This is because Napster had some cash in the bank ..
They did not but Naster for the music business see below
n its announcement, it is significant that Best Buy hardly mentioned music subscription. Rather, it described the company’s emerging capabilities to offer services through cellphones, its technology and customer service operations. The company said it is keeping Napster’s management and its Los Angeles operation.
“We can foresee Napster acting as a platform for accelerating our growth in the emerging industry of digital entertainment, beyond music subscriptions,” said Dave Morrish, Best Buy’s executive vice president for connected digital solutions, in the company’s press release.
http://bits.blogs.nytimes.com/.....g-napster/
For $50M in cash…this is a deal. BestBuy now bought a seat at the table and can threaten repricing their ‘private-label’ service to get a better deal with Apple et al. They will make much more than $50M here. TechCrunch does not understand retail economics.
napster still around
I use Itunes regularly for streaming music. It’s catalog of freely available streams allows me to easily find the music I want to hear and listen to it. Yes, the audio quality is lackluster, but I think music quality is an issue to only to a small portion of the music listening public. Granted, that portion tends to spend more on music and equipment. If I want to go listen to an entire album right now, without downloading it, I know exactly where to head: Napster. What about you?
Really? And just how do you use Itunes for streaming music other than the internet-based radios? Itunes does not have an on-demand model for music, you can only hear 30 second snippets of the tracks until you purchase them. Comparing Napster and Itunes is like comparing Apples and Oranges. Now, comparing Napster and Rhapsody is more like it.
Is this the exit that Fanning has been waiting for?
Did he receive his long overdue breifcase of money?
Anyone know how much?
Do you TechCrunch people make up this spin or do you buy it from other people?
Why does this have to be spun with a negative?
How about just reporting the story and keeping your opinion’s to yourself. It’s reporting like this that creates a negative feel. Last I checked, these were both American companies so how about jumping on the America success train for a while huh?
Don’t we want them to succeed? Or is it better to talk about what a rotten deal it is and basically stamp it a failure before it ever starts?
I am sick of the “if it bleeds it leads - and if it is not bleeding, cut it so it does bleed”. Yes, I am from the media biz so I know all to well how this crap goes.
I am starting to take TechCrunch less serious each day to be honest.
Man, you people….
Big winner for this deal is Napster.
Nat
http://www.workersinc.com
This deal actually makes perfect sense! It is a match made in heaven on several levels. I actually wrote about it in one of my posts today which you can find here: http://globalgeeknews.com/blog.....in-heaven/
I will give you one hint as to the reason: Walmart. If you want to know more, read my post and the argument I make in it. I am actually surprised that virtually nobody seems to be grasping what is going on here besides myself. In the end, I think this is the best $121 million that Best Buy could have spent.
strange, my name is not being shown. Oh well, this post was mine
It is interesting that TC can just report whatever they want without doing their homework. It might have worked when they were smaller, but now that they get picked up by legitimate news sources, you think they would do just a little digging….even reading the press release would be enough. Best Buy didn’t buy Napster primarily for their online subscription business (which I agree is outdated), they bought them (as other people here have mentioned before - not for $121M, but for $54M) to bundle into Best Buy’s big mobile initiative, as an add-on feature.
Creative Labs should have bought Napster….could have given them the media ecosystem they are missing to support their ZEN players.
Creative is barely alive, with their add in card market all but dead, they’ve succumbed to being a “Made for iPod” licensee in hopes of being yet another player in the iPod ecosystem. Moreover, Creative voluntarily delisted themselves from the Nasdaq and to make matters worse, with the introduction of the Zune, they’ve simply lost marketshare with no compelling answer to even beat Microsoft’s rebranded Toshiba Gigabeat S (aka the Zune 30). Creative should consider selling some of their IP and getting rid of products that don’t perform (such as the Cambridge Soundworks group they more or less ran into the ground).
Good move. iTunes is the biggest music store in the world. To continue to sell music they need to transition to the new platform. I am certain movies are next. I was in a Best Buy recently and realized how much of the floor space was dedicated to hard media. I guess they did too.
In retrospect, since Napster is a public company, a simple look up on Google Finance would have yielded the financial info needed for a true analysis. But, when speed is the game, it’s understood why the journalist-type folks at TC skip out on the ever important details and facts that are there if they wanted to do a thorough analysis.
http://finance.google.com/finance?q=napster
Napster is actually a spin off of a SCSI card manufacturer - Adaptec. Adaptec spun off Roxio, a software company, who then purchased Napster which then became it’s own independent company. So while Napster is in LA, it has links back to the valley, specifically Milpitas.
Music subscriptions are much better then iTunes.
Best Buy will combine that with Last.fm to recommend content and they will ship hardware such as Archos 5 with content subscription contracts built-in.
So you can get an Archos 5 with 250GB and the DVR Station for $1 if you sign a 2-year Napster subscription contract at $19 per month, which includes unlimited music and movies.
Hi,
For the sake of completeness, Best Buy is buying Europe’s largest mobile phone retailer, combined with the slew of asian/mobile phone on-deck music deals Napster has been signing up over the last 2 years, I hope I don’t have to explain where the [bargain] value lies……..
Kind regards,
Shakir Razak
Wow, must be nice to have $121 MILLION lying around. I guess retail sales arent slumping after all.
Jif
http://www.anonymize.us.tc
I think the answer to why Best Buy purchased Napster is a simple one. They’re trying to keep up with Amaon. There’s no hope of Napster ever catching ITunes, so they can just give up on that idea, and believe they have. Amazon however is entirely different. Even Wal-Mart online has to be considered even though I think Wal-mart has a pretty crappy site. If Best Buy wants to be relevant online, digital music is one area they need to seriosly address. This might also be a part of a larger plan to do a complete makeover of their web site.
This is a very smart move for Best Buy in the long run. CDs in the store are going to become obsolete at some time or another…so in order to keep competitive they are going to need a digital download service. Not only could you access all the songs from your home, but if they decide to put in a sort of download station in the store, they can reduce a LOT of space from getting rid of all the CD racks.
I work at Best Buy in the media department…im getting really sick of looking for lost CDs…this would be a godsend for me!
Not a bad deal for Best Buy in my opinion.
1) Best Buy has 1,300+ stores. A relatively small investiment in in-store promotion could massively grow Napster’s customer base.
2) The incremental cost of serving a new customer for an established digital distribution business like Napster is close to 0, so growth will translate in an higher margin business than retail.
3) Best Buy has a well developed multi-channel commerce strategy in which digital distribution fits nicely.
4) 1 x Sales with Napsters’s balance sheet and p&l sounds like a pretty good multiple for Best Buy.
Having been a subscriber and fan of the Napster model for the last 3 years, I applaud the Best Buy purchase as long as they don’t mess up a good thing. I love the fact that I can load almost 4 GB of music onto my Samsung cellphone and use it as my MP3 player. And I can change out my mix of music as often as I want for around $15 bucks a month. Nobody offers anything comparable that I’ve found.
Yeah, I wonder what will happen if Best Buy offers 3 months free trial subscription with every music device and radio that they sell…
NAPSTER SERVICE IS SOOO DISHONEST!!. I went on naptster to purchase a few songs and they used my credit card info to sign me up for a “free trial” which I didn’t know I was signed up for until 3 months later! - I told them that I didn’t want the membership and to refund me but they wouldn’t do it . Extremely dishonest people.
I use Napster To Go and hope this deal will force more MP3 manufacturers to become compatible.
Also, I sure that Napster didn’t just sign you upWendy. When you go on Napster you can sign up for a free trial, or just create an account if you just want to use their store to purchase music.