Best Buy Acquires Napster

Everyone saw this coming.  Napster, the infamous digital music service known as the founder of illegal music downloading, was acquired by Best Buy.  This was definitely a distress acquisition as Napster has been struggling to get to that magical number of subscribers so that it can turn a profit.  Best Buy, although aggressive in the digital music, can now claim a few hundred thousand digital music subscribers to up-sell other products including MP3 players and accessories. 

 

However, I don’t really see any big upside for either group other than the fact that Napster will not go out of business with the deep pockets of Best Buy to absorb its losses.   Napster may see an uptick in subscribers because they will definitely start pushing Napster advertisements in all Best Buy stores and offering discounts on the service when purchasing certain products.  Even if this ends up providing Napster with a boost in brand name and users, the digital music industry continues to experience massive disruption with low margins across the board for digital music companies, including Apple’s iTunes. 

 

I will keep saying this, until there is real differentiation between these digital music services and someone figures out the killer app that music buyers need or want, digital music companies will continue to be acquired for next to nothing or simply go out of business.  Catalogs / songs are all the same across the various services with the only real differentiator being which file format the songs are in, the MP3 player they are compatible with, or whether you can burn the songs to CD.  With the proliferation of the MP3 format, which will eventually be the only format, all of these differentiators will go away.  Then what?

 

The one true killer app in digital music will be recommendations i.e. is filtering through the millions of songs in the marketplace and providing users with the songs they like or may like.  iLike is on the brink of figuring this out.  iTunes is now providing recommendations. Will the Myspace music service (launching soon) figure it out?  Who will solve the puzzle on how to really make money in the digital music business, other than Apple / iTunes?  We will see.  The company that does (or gets close to it) will be rewarded in a big way!