Monday, September 15, 2008

Best Buy to Acquire Napster

Best Buy Inc. has agreed to buy Napster Inc. for $121 million, a deal that the consumer-electronics giant said it will use to reach new customers.

The deal, which includes $67 million of cash and short-term investments on Napster's books, values the provider of digital music at $2.65 a share, nearly double Friday's closing price of $1.36.

The acquisition, which is set to close in the fourth quarter, includes Napster's 700,000 digital entertainment subscribers, Web-based customer-service platform and mobile capabilities.

"Best Buy intends to use Napster's capabilities and digital subscriber base to reach new customers with an enhanced experience for exploring and selecting music and other digital entertainment products over an increasing array of devices," said Best Buy President and Chief Operating Officer Brian Dunn.

Best Buy has been expanding its wireless products and services, rolling out cellphone departments to all of its U.S. stores. In May, the consumer electronics retailer paid $2.1 billion to form a joint venture with U.K.-based Carphone Warehouse Group PLC.

Napster said Chief Executive Chris Gorog and the company's senior executives will remain in their posts. The company does not plan to relocate its Los Angeles headquarters.

In late May, Napster began selling songs in the unrestricted MP3 format, a move the company hoped would bolster its position against Apple Inc.'s iTunes and Inc.'s online store. Napster also continued selling restricted tracks via its subscription service.

I believe this is a great move for Best Buy. Remember when Blockbuster began renting movies online? They effectively killed Netflix.

By having 'bricks-and-mortar' retail outlets as well as a strong online presence, Best Buy should be able to compete with Amazon (no bricks-and-mortar) and Wal-Mart (not a destination for online music downloads).

Hopefully they'll be releasing Chinese Democracy as a physical and a digital product sometime in the next 10 weeks.


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