Napster and Best Buy Will Soon Make Beautiful Music Together

Napster Inc., the online music community that rose from a dorm room project to became the scourge of the global recording industry, is being purchased by Best Buy Inc. for nearly $127 million as the electronics retailer tries to boost its digital music business.

On Monday, September 15th, Best Buy, agreed to acquire Napster for $126.9 million, or $2.65 a share. The deal, which is nearly double Napster’s Friday closing price of $1.36 a share, has been approved by the company’s board and will be supported by its directors and executive officers.

In a statement, Best Buy valued the deal at $121 million, and said the difference was due to unvested employee stock awards at Napster. According to its most recently quarterly filing, Napster had about 47.9 million shares outstanding as of Aug. 8, implying a price of $126.9 million.

Napster, a once-free file-sharing network, was a favorite tool among college students earlier in the decade. But as the service gained popularity, the company became the sworn enemy of heavy metal band Metallica and along the way fueled a cultural, legal and political debate about copyrights and intellectual property while at the same time helping popularize digital music.

Although Best Buy and Napster have digital music download services, the companies hope the combined service will put pressure on Apple’s iTunes, which currently holds roughly 70.0% on the digital music download market. Best Buy’s relationships with mobile device makers and access to new digital device buyers will use Napster’s well-known brand and Web platform to offer new ways to find and use digital entertainment across a broader range of devices.

Best Buy has been making headway into selling mobile handsets recently, and has been offering a Best Buy Music Store (powered by Rhapsody) for some time. Best Buy will most likely utilize Napster as a means of bundling digital content with its PC and mobile handset offerings.

This deal is also a boon for Napster, which last month reported a loss of $4.4 million, or 10 cents per share, as revenue slid 6 percent. Experts said Napster would likely face more struggles on its own as the popularity of Apple Inc.’s iTunes grows.

The takeover, which must receive regulatory and shareholder approval, is expected to close in the fourth quarter.

Remember When?
Napster was launched in 1999 as an online file-sharing service by Northeastern University student Shawn Fanning. Members could access millions of songs stored on other members’ computers without paying a fee. The music industry, through the Recording Industry Association of America and performers such as Metallica and Dr. Dre, claimed copyright violations and attempted to shut down the service with numerous lawsuits.

The lawsuits were effective and Napster, in its original incarnation, was eventually forced to close in 2001. However, it soon reemerged as a seller of fully licensed digital music tracks after its brand and logo were acquired by private concerns. Today Napster has a subscriber base of over 700,000.

Check out Napster’s current site:

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