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Nice move, Best Buy (NYSE: BBY ) .
The consumer electronics superstore chain is buying Napster (Nasdaq: NAPS ) for $2.65 a share. It will give Best Buy a foothold in the digital music subscription market where Napster competes against services like RealNetworks' (Nasdaq: RNWK ) Rhapsody.
The beauty behind the $121 million deal is that Best Buy won't have to shell out that kind of money. Napster closed out its latest quarter with roughly $1.40 a share in cash and short-term investments. Best Buy will have to pay just over $53 million to make up the difference.
What's in it for Best Buy? Plenty. Napster's membership base has been declining lately, but it still has approximately 708,000 paying subscribers. These are hardcore music fans, likely to be receptive to Best Buy pitching new digital players, accessories, and music their way.
It's also the correct tactical approach to combat competition. Retailers like Best Buy, Wal-Mart (NYSE: WMT ) , and Amazon.com (Nasdaq: AMZN ) have been selling MP3s for some time. Best Buy's digital music store is actually powered by Rhapsody. Acquiring Napster would give it a brand with pedigree papers.
This doesn't mean that Best Buy will butt heads with Apple (Nasdaq: AAPL ) . Best Buy is an ally of Steve Jobs, especially with its recent move to become the only third-party retailer in the country to sell iPhones.
However, Best Buy isn't a slave to Apple's products. It also has other products for music lovers to buy, like satellite radio receivers, rival portable players, audio equipment, and even real world CDs. Adding a music subscription business to the other offerings makes the deal with Napster a win-win.
You see, from its perspective, Napster is coming off of five consecutive quarters of positive cash flow. It certainly was in no rush to cash out, unless it feared that Apple or Amazon would have a proprietary music subscription product out soon. Isn't that inevitable at this point?
Handing off its model to Best Buy is likely to result in a boost in subscribers, too, as Best Buy markets the suddenly more credible service to its sea of shoppers.
Yes, this is sweet music to everyone's ears. Well, everyone except Rhapsody.
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