One of the oldest subscription music services on the net, Rhapsody, is acquiring rival music service, Napster. The company has taken over Napster subscribers and other assets from electronics retailer Best Buy. Best Buy will obtain a minority stake in Rhapsody.
Rhapsody president Jon Irwin made the news official with his statement, “This is a ‘go big or go home’ business, so our focus is on sustainably growing the company. We are excited to welcome Napster music fans to the best on-demand music experience anywhere. Our new members will have more places to connect to the music they love and to discover new favorites; guided by Rhapsody’s rockstar editorial team and the tastes of other Rhapsody members via our innovative social features.”
The ‘other assets’ that will move over to Rhapsody include Napster’s IP portfolio. However, the deal is quiet on the Napster’s label contracts. At present, Napster has a streaming music catalog of over 15 million songs as well as apps for the desktop, mobile and TVs. The software also provides access to streaming music radio stations, thousands of playlists, offline music, charts and more.
On the other hand, Rhapsody boasts of a catalog of 13 million songs, which implies that Napster subscribers will be losing access to a good number of tracks in the transition. Rhapsody’s other offerings include cross-platform apps, playlists and a radio feature, similar to what Napster now has.
The acquisition has come at a time when startups like Spotify, MOG and Rdio are ruling the roost while the older brands are languishing. Nothing made it much clearer that Napster was floundering and was on its way out than the fact that while Rhapsody was listed among the services receiving Facebook music integration, Napster was not.
Napster has had a checkered past. The online music store was founded in 1999, as a pioneering peer to peer file sharing Internet service that emphasized sharing audio files that were typically digitally encoded music as MP3 format files. The company was bombarded with lawsuits by record companies and the brand and trademark were eventually sold. In September 2008, Napster was purchased by Best Buy for USD 121 million, which enabled the retailer to enter into the online music sector. Best Buy tendered an all cash offer of $ 121 million representing the outstanding shares of Napster at $ 2.65 a piece.
Rhapsody was originally launched in December 2001 as the first streaming on-demand subscription service to offer music for a flat monthly fee. By mid 2002, the company had secured licensing rights to all of the major record labels at the time. The service was acquired by RealNetworks in 2003 where it operated under the parent company until 2010 when it separated from RealNetworks and lowered its monthly subscription rate.
The Rhapsody-Napster stock-based deal is expected to close on November 30th. Though the companies involved did not disclose the financial details, it is doubtful whether Best Buy could make good its investment in Napster. Rhapsody has 800,000 subscribers, paying at least $ 10 per month for access to its catalog of songs. In the face of challenges by upstarts, Rhapsody has evolved by adding better social media integration and strong mobile applications for iOS, Android, Blackberry and Windows Phone 7. The key area where Rhapsody loses against its competitors is sound quality where it offers only 128 kbps streams. Only time will tell whether acquisition of Napster will enable Rhapsody to face the challenges offered by competition.