Best Buy and Napster: Dumb 2.0

So Best Buy is acquiring Napster, the struggling music subscription service, for $121-million. That’s a nice premium for Napster’s shareholders — about 85 per cent over what the shares were trading for before the offer — but they are likely to be the only ones celebrating this deal, I predict (and even so, the stock has tumbled by more than 60 per cent in the past year). The acquisition is obviously an attempt by Best Buy to branch out from the slow-growth electronics business, and there’s nothing wrong with that impulse. But buying Napster is a dumb way to go about it, in my view.

No doubt Best Buy believes that it can somehow magically fix what is wrong with Napster, by combining the service with its deep pockets and existing technology retail business. Adam Ostrow at Mashable says he sees the deal as making sense, and I would argue that he is right — to a point. Best Buy clearly sees Napster as a relatively cheap add-on, considering the company’s stock was barely trading on par with the amount of cash it had on hand ($67-million). But unless Best Buy has supernatural abilities (and the company’s track record in music doesn’t exactly fill me with confidence on that front), I think this combination is doomed.

Why? Because Napster’s problem isn’t a lack of money, it’s a lack of a successful business model. Despite the protestations of those who enjoy streaming music services, including Union Square Ventures partner and noted music fan Fred Wilson, the fact remains that most people don’t want streaming or “subscription” music — that is, music they can’t keep forever. If they did, then Yahoo Music wouldn’t have been such a dismal failure, Virgin Music wouldn’t have shut down, AOL Music wouldn’t have had to be acquired (by who? Oh yes — Napster) and satellite radio companies Sirius and XM likely wouldn’t have had to merge. For whatever reason, people like to own music.

Napster recently launched a download store, in a transparent attempt to embrace an iTunes-style model, but the odds are stacked against the company. Is Best Buy going to suddenly change those odds and compete with Apple and Amazon and half a dozen other services, just because it can bundle Napster with every mp3 player or computer it sells? I doubt it. As Joe Weisenthal notes at PaidContent, Circuit City has tried tie-ups with both Napster and its major competitor Rhapsody in the past, with little or no success. This has FAIL written all over it.

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