Best Buy to pay US$121m for Napster to fuel digital ambitions

15 Sep 2008

The US electronics giant Best Buy is to pay US$121m to acquire Napster, the company started in 1998 by 18-year-old Shawn Fanning, and which sounded the death knell for the once-lucrative music industry.

Best Buy is to pay US$54m net of US$67m in cash and short-term investments in Napster. The deal works out as a cash tender offer of US$2.65 per share of Napster, which is listed on the Nasdaq stock exchange.

The proposed acquisition includes Napster’s 700,000 digital entertainment subscribers, Napster’s web-based customer services platform and its mobile technologies.

The deal has been unanimously approved by Napster’s board and is expected to close during the fourth quarter.

Napster’s CEO Chris Gorog and other senior management team members have already signed employment agreements with Best Buy.

Best Buy is the largest electronics retailer in the US and has over 1,800 stores worldwide. Earlier this year, the company acquired a 50pc stake in Carphone Warehouse and plans to open branded stores across Europe in the year ahead, including Ireland. It is also rumoured to be looking at buying the DSG group of stores in Europe, which includes PC World, Dixons and Currys.

Napster burst onto the scene in 1999, when following a dearth of poor quality album releases from major big five labels, Bostonians Shawn Fanning and Jordan Ritter created a peer-to-peer music sharing service that was praised by people who wanted quality music via their computers.

Although denounced by the music industry as piracy, the model caught on, and ever since the protectionist strategies employed by the music industry have backfired.

A number of lawsuits against Napster from bands like Metallica, Dr Dre and Madonna, as well as the powerful Recording Industry Association of America, led to Napster being shut down.

In recent years, entertainment firm Roxio acquired the Napster brand name in an auction and recreated it as Napster 2.0, selling music legitimately online.

Best Buy said it intends to use Napster’s capabilities and subscriber base to reach new customers for music and other digital entertainment products and devices.

“We believe Napster brings us excellent capabilities in the mobility space, as well as international operations and an established team of technology experts,” said Dave Morrish, executive vice-president – Connected Digital Solutions of Best Buy.

“We can foresee Napster acting as a platform for accelerating our growth in the emerging industry of digital entertainment, beyond music subscriptions. We’re very excited to add these capabilities to leverage our existing relationships with the labels, the studios and the hardware providers.

“We believe Napster will be an outstanding addition to our already robust portfolio of partners and offerings in the digital music space,” Morrish added.

By John Kennedy

Pictured: Napster is soon to be a member of the Best Buy family

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years