Los Angeles Business Journal

Rhapsody Buys Napster

By Deborah Crowe Monday, October 3, 2011

Consumer electronics retailer Best Buy Co. is selling the subscribers and other assets of Napster to Rhapsody International Inc., a competing online music subscription service.

Best Buy of Minneapolis will receive a minority stake in Rhapsody of Seattle, but other terms of the deal announced Monday were not disclosed. Napster, based in Los Angeles, was acquired by Best Buy in 2008 in a deal valued at $54 million.

Rhapsody said the deal will “further extend Rhapsody’s lead” over competitors. It did not say whether the Napster name and its distinctive headphone-wearing cat logo would survive in any form after the deal closes, which is expected to take place by Nov. 30.

“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,” said Rhapsody President Jon Irwin in a statement.

The deal is the latest in a tumultuous 12-year history for Napster, which originated a peer-to-peer file-sharing web site that outraged the music recording industry because it enabled users to share music for free. Following legal challenges, it closed in 2001 but reopened two years later as paid music service.

Rhapsody, which charges subscribers to listen to a catalog of more than 13 million songs, began as joint venture between RealNetworks Inc. and Viacom Inc. It was spun off into a separate company in April 2010. It faces competition from Internet music companies that include Spotify Ltd., which is popular in Europe and recently expanded into the United States.

Rhapsody, which operates only in the United States, reported more than 800,000 subscribers as of July. Napster, which has users in Canada and Europe, had around 700,000 subscribers when Best Buy bought it. Analysts estimate that number has shrunk to less than 500,000.