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Best Buy will pick up Napster in an attempt to compete against more successful online music services

Best Buy kicked off this week by announcing that it purchased Napster for $121 million in cash in an attempt to compete against Apple iTunes and Amazon's online music store.  The deal should be closed by the fourth quarter.

“This transaction offers Best Buy a recognized platform for enhancing our capabilities in the digital media space and building new, recurring relationships with customers,” said Best Buy President and COO Brian Dunn.  “Over time we hope to strengthen our offerings to consumers, who we believe will increasingly seek devices and solutions that enable them to access their content wherever, whenever and however they want.”

Since Napster has about $67 million in cash and short-term investments, Best Buy will actually end up paying just $54 million, or $2.65 per share, which is a 50 percent increase in the stock's closing price last week.  The company purchased several smaller online music stores over the past few years, but its stock price continued to drop -- but the turnaround started in May, when the company launched its new store.

Both Best Buy and Napster have their own digital music download services, but both services have had a hard time competing with Apple which controls 70 percent of the music market.  Best Buy will be able to collect Napster's 700,000 subscribers, along with the Napster customer service platform and mobile service.  The deal does not include the company's peer-to-peer platform, which is a strong sign that it is no longer relevant.

Napster's online music store is one of the largest in the world, and generated $127.5 million in revenue over the last fiscal year.

Napster has 140 employees in its Los Angeles headquarters and Best Buy does not have immediate plans to make drastic changes among the employees.





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