Does Best Buy-Napster Make Sense?

I confess my first thought on hearing of Best Buy's acquisition of Napster was, "Does Napster still exist?" So, without a strong opinion on the situation one way or another, let's take a look at what's being said about the $121 million deal, and then discuss. Hit the comment button and weigh in.

Paid Content: Once you net out Napster's cash and short-term investments, Best Buy is only paying $54 million for Napster, making the deal a low-risk proposition for the electronics chain, Joseph Wiesenthal argues. Best Buy and Circuit City have both partnered with Napster for digital distribution projects, all of which came down to "lots of press releases, partnerships and experiments, but very little to show for it."
Seeking Alpha, Positive: George Gutowski notes that the deal makes good marketing sense, combining Best Buy's retail execution skills with Napster's 700,000 subscribers and new mobile technology. But, he adds, "Digital platforms such as Napster and other sites require huge Capex spending for R&D. This is an industry that eats its own babies for the smallest incremental advantage. As of Q2, [Best Buy] has approximately $1.5 Billion in Cash and Short Term. Take out approx $120 million for the acquisition and the deal looks cheap. But maybe it's like buying a cheap SUV... the purchase price looks good but it will not sip lightly on the gas."

Seeking Alpha, Negative: Mathew Ingram takes the opposing view, arguing that Napster has never had a successful business model. "For whatever reason, people like to own music," he writes, noting a long list of failed or struggling streaming music services ranging from Yahoo Music to Virgin Music and satellite radio. "Is Best Buy going to suddenly change those odds and compete with Apple and Amazon and half a dozen other services, just because it can bundle Napster with every mp3 player or computer it sells? I doubt it."

This Week in Consumer Electronics: Reporting on Best Buy's second quarter earnings, reporter Alan Wolf notes the chain has bet big on the mobile segment, spending heavily to ramp up Best Buy Mobile stores and Apple store-in-stores, which will start selling the iPhone this fall. "Mobile phones and accessories experienced a nearly triple-digit increase in comps and a strong double-digit gain in wireless connections," Wolf notes.

Mashable: Adam Ostrow thinks absent a business plan or any hope of profitability, "Best Buy is certainly one of the more logical places for the company to land."