The big news today is that Best Buy in the U.S. has purchased online music download company Napster for a reported US$121 million. Which begs the question: why?
Online music downloading has been an arguably struggling business for years, plagued by illegal, peer-to-peer (P2P) music Websites and customer's (warranted) hatred of silly things like DRM that prevent you from listening to purchased tracks on various devices, or burning them to CD. According to the Financial Times, Napster actually reported a loss of US$16.5 million in the year ending March 31.
Along with the still existent P2P activity and DRM (which is slowly melting away, but could see a resurgence thanks to the Government's Bill C-61), online digital download sites like Napster still have to fight the leader in that realm: iTunes. And with the iPhone added to the iPod family, iTunes will likely continue to be the leader of the pack, likely by an even bigger gap.
I'm trying to fathom why Best Buy would take on the task of competing with iTunes. The only thing I can come up with is that the strategy works in tandem with the retailer's recent move to ramp up its involvement in the mobile phone arena. Best Buy is opening standalone Best Buy Mobile stores that sell mobile phones. As is evidenced by devices like the iPhone, Nokia N95, and Sony Ericsson Walkman phones, music is becoming a huge part of the mobile phone experience. Could Best Buy be working out deals with carriers to link Napster downloading with their services? Or is Best Buy just looking to get back into this side of the business now that companies are offering DRM-free tunes that are more appealing to customers?
On the portable media player side, perhaps this is a way for Best Buy to make money on the sale of devices other than the iPod. Maybe a Napster subscription will be offered as an incentive to the purchase of an MP3 player. Or on the flip side, maybe "deals" on music downloading will be awarded in store on purchases. Who knows.
While there's no official comment on how the takeover might affect the Canadian market, my guess is that Best Buy is just testing the waters for now, and making sure that the company is well equipped to compete should digital music downloading take a significant upsurge in the next few years. While I'm rooting for this to take off, I'm not holding my breath either.