Best Buy swoops in to pick up Napster in the nick of time


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Best Buy Co. said today that it would buy Napster for $121 million, or $2.65 a share. That marked a huge premium over the Los Angles-based digital-music company’s trading price, which had been around $1.30 in recent weeks.

The news comes days before Napster shareholders were meant to gather in L.A. for what promised to be a contentious meeting: Three shareholders had banded together to go after board seats. Their argument has been the company hasn’t been managed well and hasn’t been aggressive enough looking for new buyers. Oh, and they aren’t happy that Napster has been losing money and subscribers.


As part of the news today, Napster said its annual meeting, scheduled for this Thursday, had been postponed.

Why this makes sense for Napster, which has been struggling financially, is clear. In recent years, it has had a retail partnership with Best Buy, selling things such as gift cards for music services. So it will be interesting to see how the big retailer integrates the Napster service throughout its store. (Buy an iPod and Best Buy throws in a Napster subscription for six months?) Napster had $67 million in cash reserves, so Best Buy is essentially landing the company for $54 million.

And for Best Buy? The retail giant picks up 700,000 Napster subscribers for that $54 million (about $77 per subscriber). Best Buy, which is the first independent retailer to sell Apple’s iPhone, also gains a richer online music store than it currently offers, strengthening its position as a one-stop shop for music products and services. With Napster, can Best Buy regain sales it has lost to Apple’s iTunes, now the No. 1 music seller in the U.S.?

Also, don’t underestimate the cool factor for Best Buy and the legitimizing factor for Napster. Napster started as a file-sharing site that was shut down through recording-industry lawsuits and morphed into a legal music site after it was bought by a company called Roxio, which adopted the name. One of the dissident shareholders recently told me that people remember the old renegade Napster and don’t realize what the new version offers. Best Buy’s job now is to hang on to Napster’s cool image but get the word out about what Napster is about today.

I’ll find out how the dissident shareholders are responding and will report back.

-- Michelle Quinn