This time it's Best Buy that is selling off Napster

  • Article by: STEVE ALEXANDER , Star Tribune
  • Updated: October 3, 2011 - 9:45 PM

Best Buy sold its Napster online music service to Rhapsody. Once a pirate music service, Napster became legit a decade ago.

Napster, once the most celebrated name in illegal music downloads and now a legitimate online music provider, is being sold for the third time.

This time the seller is Richfield-based electronics retailer Best Buy, which bought Napster for $121 million in 2008, and marketed the music service alongside the competing Apple iTunes and Microsoft Zune Pass services.

The buyer is online music company Rhapsody, which, like Napster, is strictly a streaming-music service that doesn't sell downloadable tunes. Terms of the stock-based Napster sale weren't disclosed, except that Best Buy will retain a minority stake in Rhapsody. The deal is expected to close about Nov. 30.

Best Buy bought Napster at a time when digital music downloads were growing and sales of music CDs were shrinking. But Napster couldn't overtake Apple's iTunes, which has retained its dominant position in online music.

The decision to sell Napster "was not made lightly," said spokeswoman Erin Bix. "Since Best Buy acquired Napster in 2008, the digital music environment has undergone significant change."

Best Buy didn't reveal how many subscribers Napster has today, but industry observers estimate it has less than 400,000, far fewer than the 706,000 subscribers it had three years ago. Rhapsody, which was spun off by Viacom's MTV Networks and software firm RealNetworks last year, said in July that it had more than 800,000 streaming-music subscribers.

Best Buy will focus on selling music devices, but with the sale of Napster it has no plans to have its own online music service, Bix said.

"We will continue to sell iTunes, although I'm not sure about Zune," Bix said.

Users with Napster or Rhapsody streaming-music subscriptions can listen to as much music as they want. But they can't permanently store songs on their computers, and they lose all the music if they stop paying. Napster's offering of 15 million songs apparently will decrease to the 13 million tunes Rhapsody offers.

It was unclear whether Rhapsody will retain the Napster brand.

Industry analysts say Rhapsody is in danger of being eclipsed by newer online music services such as Spotify, MOG and Rdio that offer a limited amount of free listening plus the ability to choose specific songs as a way to draw people into their subscription music-streaming plans. Spotify already has about 2 million subscribers, although most are in Europe.

Napster was founded in 1999 by college dropout Shawn Fanning, who pioneered peer-to-peer file-sharing technology that made it easy for people who didn't know each other to swap tunes for free online. After Napster was sued for copyright infringement by the major music companies, it filed for bankruptcy and was shut down in 2001. Napster was purchased in 2002 by music software firm Roxio Inc., which then took the Napster name for its legitimate online music business.

Steve Alexander • 612-673-4553

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