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Best Buy Continues Mobile Assault With Napster Grab

Andrew R. Hickey

Minneapolis-based Best Buy on Monday said it has entered into a merger agreement with Napster to acquire the once-illegal, now-legit music service for a total of $121 million. The Napster purchase comes on the heels of Best Buy opening Best Buy Mobile stores in its 970 United States retail last month. Best Buy Mobile, which is essentially a store-within-a-store offering mobile phones and devices, plans and accessories, was part of a two-year conversion for Best Buy.

Best Buy also recently became the first retailer outside of Apple and AT&T stores to sell the coveted Apple iPhone 3G.

While Best Buy already has a working partnership with Apple, the Napster buy would help it to better compete with Apple's iPod and Apple's iTunes music service, which currently holds a roughly 70 percent stake of the digital music market. The Napster deal will also pit Best Buy in stronger competition with Amazon, which recently added the digital music offering Amazon MP3 to its portfolio.

Best Buy also offers its own digital music service but said Monday it will retain the Napster name for the combined offering. Best Buy's existing service is the result of partnerships with RealNetworks and SanDisk. They teamed up in 2006 to offer a digital music subscription service and a portable digital media player.

Best Buy's addition of Napster to its mobile arsenal would help it target more consumers by offering them downloadable and streaming music. The retailer is already one of the nation's leading sellers of compact discs, and has also gone old school and started offering vinyl records in some of its locations. Best Buy said it plans to use Napster and its digital music offerings to reach new customers over a wider breadth of devices.

According to a statement from Best Buy, Napster has "one of the most comprehensive and easy-to-use music offerings in the industry." Napster, based in Los Angeles, currently offers streaming music, subscription music services and the ability to purchase single tracks, albums and other mobile music offerings. Along with buying the Napster brand, Best Buy said the acquisition would also include Napster's roughly 700,000 existing subscribers, its Web-based customer service and mobile capabilities.

"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 Brian Dunn, president and COO of Best Buy, in the statement. "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."

Dave Morrish, executive vice president of connected digital solutions at Best Buy, agreed.

"We believe Napster brings us excellent capabilities in the mobility space, as well as international operations and an established team of technology experts," Morrish said in the statement. "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."

Napster pulled down revenue of $127.5 million in 2008, a jump of 15 percent over the prior year, but still a massive pitfall compared to prior years. In its hey-day, Napster was seen as a pioneer, setting the stage for the digital music revolution when it launched in the late 1990s, offering a free way to share digital music files. The original Napster was shut down after the music industry, spearheaded by the RIAA, filed a lawsuit claiming copyright infringement and illegal distribution of copyrighted materials, sparking a file sharing debate that continues today. The Napster branding was later acquired and resurfaced as a legit digital music subscription service, but it never caught on like Apple's iTunes.

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