Rhapsody, the subscription digital music service, said on Monday that it had signed an agreement to acquire Napster from Best Buy, uniting two cloud music players amid escalating competition in a growing market.
With the deal, which is expected to be completed by the end of November, Rhapsody would absorb Napster’s subscribers and acquire other assets, including the Napster brand name and logo. Best Buy would receive a minority ownership in Rhapsody. Other terms of the deal were not disclosed.
For Rhapsody, the deal could allow a quick bulking up of its subscriber base to better compete with Spotify, the European service that arrived in the United States in July. Spotify has more than 10 million users around
the world, 2 million of them paying about $5 or $10 for its premium service and the rest listening to free music supported by advertising.
In August, Rhapsody said it had 800,000 users who pay $10 or $15 a month to access its catalog of millions of songs. But it was unclear how many more users the company would gain
from Napster.
Best Buy has not reported Napster’s subscription numbers since it bought the company in 2008, for $121 million. At that time, it had 700,000 paying users, but music executives say that its subscriptions have since fallen significantly, to an estimated 300,000 to 400,000. (Rhapsody operates in the United States only, but Napster also has subscribers in Canada and Europe.)
Best Buy would not comment on its current subscription size. But in a statement, the company offered its rationale for the deal:
“Rhapsody has demonstrated that it has what it takes to build a profitable business in the increasingly competitive on-demand music market,” said Chris Homeister, senior vice president and general manager of entertainment for Best Buy. “We are confident they are the right partner to provide Napster’s existing subscriber base with an immersive digital music experience moving forward.”
Rhapsody said it would release its total subscription numbers when it completes the Napster absorption. A spokeswoman also said that Rhapsody plans to phase out Napster’s name and logo in the United States, a symbol with some no small amount of notoriety in the music business.
The original Napster peer-to-peer service, founded in 1999, began a decade of rampant file sharing that left the industry badly damaged. It was sued by the major record labels and was shut down in 2001, and after its name was sold, Napster was re-introduced as a licensed pay service in 2003.
Competition among digital music companies has been ratcheted up lately with Facebook’s introduction of media-sharing features that let users automatically post links to songs through a range of services. Media analysts and technology executives have said that Facebook’s new music integration could give a boost to services like Spotify and Rhapsody, but that the companies with the most users would have an advantage over all the others.
Spotify and Rhapsody were among about a dozen music partners that were part of Facebook’s announcement last month, along with Rdio, MOG, Slacker and Turntable.fm. Napster was not included.