The proxy battle for control of Napster (NASDAQ:NAPS) has been ended through the form of an acquisition.  Richfield, Minnesota based retailer Best Buy Co., Inc. (NYSE:BBY) has bought the digital music download company for $121 million.  The agreement is that Best Buy would buy out all of Napster’s stock at a price of $2.65 per share in cash.  The transaction will close in the 4th quarter.

Through the acquisition, Best Buy will gain control of Napster’s 700,000 subscribers, the web platform behind the company, and the mobile platform.  Napster CEO Chris Gorog and other senior members of the company will stay on board with Napster for an agreed amount of time. 

“This transaction offers Best Buy a recognized platform for enhancing our capabilities in the digital media space and building new, recurring relationships with customers,” stated Brian Dunn, President and COO of Best Buy. “Over time we hope to strengthen our offerings to consumers, who we believe will increasingly seek devices and solutions that enable them to access their content wherever, whenever and however they want.”

Prior to the acquisition, three of Napster’s shareholders were in a proxy battle to have the board ousted.  These three individuals were Perry H. Rod, Thomas Sailors, and Kavan P. Singh.  But then Napster hired UBS to solicit an acquisition.

Napster generated revenue of about $127.5 million in 2008.  This was a 15% increase from 2007.  Shawn Fanning should be proud.  The company he started in college is still worth something today, even 8 years after the dot com bubble crash.

Napster, Inc. (NASDAQ:NAPS) has hired UBS AG (NYSE:UBS) to help them with their proxy battle and to solicit an acquisition. Napster is a small competitor of iTunes and Amazon.com and was the talk of the tech town in the late 90’s/early 2000’s.

There are three shareholders that are looking to have the current Board of Napster ousted. Perry H. Rod, Thomas Sailors, and Kavan P. Singh are the three shareholders that are having a proxy battle with the current Board. Napster’s annual shareholder meeting is taking place on September 18. The Board is seeking to have Richard J. Boyko, Philip J. Holthouse and Robert Rodin re-elected.

The letter to shareholders is available after the jump.

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In May 2007, Last.FM was acquired by CBS for $280 million.  Based on that acquisition price, major active shareholders in Napster Inc. (NASDAQ:NAPS) argue that the company should be worth just as much if not more.  The shareholders that have been pushing for management shifting and strategy changes at Napster are Perry H. Rod, Thomas Sailors, and Kavan P. Singh. 

Napster actually has over 700,000 paying customers, yet their market value is zero (market cap of about $69 million minus their saleable assets).  The reason why Napster is trading low is because of a “lack of confidence in governance” stated the shareholders.

Last.FM was a private company with a close-knit community of users when they were acquired.  Napster is a public company that was a has-been music sharing site in the early 2000’s back when it was making Metallica and Dr. Dre mad and Shawn Fanning was one of the most well known people in the tech industry.  CBS acquired Last.FM because they were ramping up their Radio services and even signed a partnership with AOL.  Last.fm currently has over 21 million active users in 200 countries. 

Should Napster be worth close to $280 million?  I’m not an active shareholder, but I’d have to say no because their user-base just isn’t that big. 

[Source: paidContent]

“It’s great that we have finally gotten here,” stated Chris Gorog, Chairman and CEO of Napster. “It is really the beginning of a level playing field, which I think is essential for Napster, but also for the health of the digital music business in general.”

Announcement
Napster Inc. (NASDAQ:NAPS) has announced today that they will start selling MP3s.  Prior to the announcement Napster was selling “all-you-can-eat” streaming music, but selling MP3s may enable the company to attract iPod users and others that prefer DRM-free music. 

Napster will be selling the MP3s for $0.99 each.  Amazon.com and iTunes are currently the dominant players for DRM-free online music sales and they sell MP3s for roughly the same price.

Napster has 6 million MP3 tracks in their library while Amazon.com has 5 million.  As of March 31, Napster has 760,000 subscribers.  Napster will continue to sell streaming subscription services despite a shift in their strategy for selling music download files.

Last month, Apple beat Wal-Mart in becoming the biggest music retailer through iTunes.  Apple sold over 4 billion songs since 2003.

Different Perspectives
While the information above was simply put together from a press release, below are some of the perspectives from the blogosphere:

* TechCrunch wrote: “I’m having trouble getting excited about it.” 
* CNET wrote “This is a huge day for digital music.”

Pulse 2.0 Perspective
I believe that both CNET and TechCrunch have great points.  While this is a huge day for digital music because now there are alternatives, Napster simply doesn’t have a large user-base.  Nor do they have a powerful brand to instantly win over new customers. 

The consumers that Napster wants to win most likely already own iPods.  And to use an iPod, you need iTunes, a Napster competitor.  It’ll be an uphill battle and the only way for Napster to win through it’s MP3 offerings is to prove that customers need them.  Only then will they be able to convince skeptics like TechCrunch that we as consumers should switch to Napster.

Information Source:
[1] Reuters: Napster rolls out MP3 store in challenge to iTunes by Yinka Adegoke

“imeem shares SNOCAP’s focus on enabling artists to promote their music in new ways,” stated CEO of imeem, Rusty Rueff.

Music streaming company, imeem has announced recently that they have acquired SNOCAP, a Digital Rights Management company started by Shawn “Napster” Fanning.  SNOCAP owns their own digital registry platform that allows independent artists to control their music distribution.  SNOCAP has over 7 million songs in their digital registry.

Financial details were undisclosed.

imeem spent the past year ramping up advertisements and partnerships.  In 2007, imeem made deals with Universal, EMI, Warner Brothers, and Sony.  While SNOCAP has been MySpace’s partner for spreading independent music.  Through the acquisition the COO of SNOCAP, Ali Aydar will be joining imeem as VP of Operations.

Information Source:
[1] MarketingVOX: Music Streaming Service imeem Buys Indie DRM Firm SNOCAP

William Gorog should be worried. Gorog is the CEO of Napster and their direct competitor, Ruckus Network[1] just raised $10 million in funding. This is Ruckus’ second round of investment and the funding was led by Anschutz Investment Company LLC and Columbia Capital[2].

Ruckus’ membership grew 60% during the Spring 2007 semester and signed contracts with 40 new schools. Currently the company has 120 memberships. Ruckus service is exclusive to those who have a .edu e-mail address.

“Today’s funding announcement caps what is arguably the most significant, successful and exciting period to date for Ruckus,“ stated Mike Bebel, the CEO of Ruckus Network, Inc. “Ruckus has become the digital entertainment service of choice for college students and administrators alike, creating considerable interest among advertisers and marketers who recognize the vast potential Ruckus fulfills. With this investment round, we are poised for even greater growth.“

Ruckus established partnerships with OneNet and Merit, who are the Internet Service Providers for educational institutions Michigan, Michigan State University, Wayne State University, Western Michigan University, etc.

The new funding will be used to develop further advertisement partnerships. Ruckus also provides full length movies for streaming.

[1] www.ruckus.com
[2] www.colcap.com

This last Friday, April 20 Circuit City Stores Inc. (NYSE: CC) and Napster Inc. (NASDAQ: NAPS) have announced that they’re teaming up in the launching of a new online music service called: Circuit City + Napster.  The service will be powered by Napster subscription services and will be available starting April 29. 

This partnership between the electronic store and the digital music service emulates a similar deal struck between Best Buy and RealNetworks’ Rhapsody player. 

What Napster gets out of the deal is that they get a new marketplace.  Circuit City is an established and well-known brand that consumers are comfortable with.  Circuit City will be able to market itself to Napster’s 566,000 paid subscribers.

“We are delighted to create this new alliance with Circuit City which is one of the top destinations in the U.S. to learn about exciting, new digital entertainment products,” stated Chris Gorog, the chairman/CEO of Napster. “Circuit City’s strength both in consumer electronics and as a music retailer should be an ideal environment to introduce Napster’s industry leading music subscription service.”

For more information, refer to the press release.

Yesterday, AOL had agreed to sell AOL Music Now to Napster for $15 million.  Napster would absorb AOL Music Now’s 350,000 subscriber client base.  After that, Napster would have 916,000 subscribers.  Before the transaction, Napster was worth about $186 million, but now with the value-added 350,000 subscribers, the valuation is expected to jump by another $100 million.

“AOL is treating this like a nonessential business,” stated Fred Moran, a Stanford Group analyst.  After the announcement was made, Napster, Inc. (NASDAQ: NAPS) shares rose by 30 cents, making Napster $4.12 per share.  AOL will continue to maintain AOL Music.

It was in October 2005 when AOL had bought Music Now for a suspected amount of $10-15 million from Circuit City.  Now AOL’s music services are owned by RealNetworks.  RealNetworks is known for streaming subscription music player, Rhapsody and WinAmp competitor, RealPlayer.

Napster will also be promoted on AOL Music pages and if certain subscription targets are made by Napster, AOL would receive additional payments.