Rhapsody to Acquire Napster From Best Buy
Rhapsody to Acquire Napster From Best Buy

Rhapsody announced Monday it has signed an agreement to acquire Napster, a competing music subscription service owned by retail giant Best Buy. The value of the was not been announced.

Under the terms of the agreement, Rhapsody will get Napter's subscribers and "certain other assets," according to the press release. In return, Best Buy, which acquired Napster in September 2008, will get an unspecified minority stake in Rhapsody. Rhapsody's press release says the transaction is expected to close on or around November 30, 2011.

The deal does not necessarily spell an end for the Napster brand, however. A Rhapsody spokesperson tells Billboad.biz that Rhapsody will "sunset" the Napster brand in the US but retain the option to use it in other territories.

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When completed, the deal will decrease the number of subscription services on the US market. Rhapsody has the most paying subscribers in the US at around 800,000. In less than one month in the US, Spotify quickly gained about 175,000 subscribers as well as an estimated 1.2 million free users - both numbers are likely outdated by now. Cricket's Muve has over 200,000 subscribers and Rdio and Mog are said to have fewer than 100,000 apiece.

"This deal will further extend Rhapsody's lead over our competitors in the growing on-demand music market," said Jon Irwin, president, Rhapsody in a statement. "There's substantial value in bringing Napster's subscribers and robust IP portfolio to Rhapsody as we execute on our strategy to expand our business via direct acquisition of members and distribution deals."

The acquisition is not surprising given Rhapsody's past. Rhapsody acquired Yahoo! Music's Music Unlimited subscription service in February 2008 to transition its estimated 400,000 subscribers to the Rhapsody service. An acquisition of a struggling service can be an effective way to quickly add much-needed scale to a subscription operation.

Napster was the likeliest of targets. The service has seemed listless lately. It has not innovated as well as its competitors and has lost consumer attention to upstarts Spotify, Mog and Rdio. Nor has it carved out a niche as Rhapsody has done with editorial and curated content. And while Rhapsody continued to build upon the value of its service, Napster's main strategic move in recent memory was to lower its price, a move that's out of step with the freemium models of its competitors. And because the potential distribution opportunities from the Best Buy acquisition have not panned out for Napster, it makes sense for the retailer to cut its losses and take a stake in a superior competitor.