Monday, we sat down with Rhapsody President Jon Irwin to get a little more insight behind why the company bought fellow online music service Napster. As part of the acquisition, Rhapsody acquired all Napster subscribers and other IP assets from Napster owner BestBuy. Meanwhile, Best Buy received a minority stake in Rhapsody.

Irwin tells us he looks forward to bringing the Napster subscriber base over to Rhapsody. Rhapsody has around 800,000 subscribers and Napster reportedly has around half that. Irwin declined to give us specific subscriber numbers, but says that the combined company will release this number n the next few months.

In terms of what Rhapsody will actually integrate from Naspter, Irwin says that the music streaming service will be looking to tie in what Napster has done in the connected device area. Check out the video below for his comments on Rhapsody’s recent Facebook integration, and more.

Yammer, which won the top prize at last year’s TechCrunch50, recently rolled out a bunch of updates to its web version, as well as its Adobe Air-based desktop client. We use the service on a daily basis for work, and those of us with iPhones are all eagerly awaiting the release of the new version of the iPhone app with Push Notifications.

As the core concepts behind Yammer are quickly becoming features that others in the enterprise space are realizing they will need to compete with, Parker’s guidance should help the company maintain an advantage, and push forward.

Parker is currently serving as the Chairman of Causes, one of the most popular social networking applications, and is a Managing Partner at the VC firm, Founder’s Fund. He is perhaps best known for serving as Facebook’s President during the time it was founded. That role is about to get the Hollywood treatment in David Fincher’s upcoming movie, The Social Network, based on Ben Mezrich’s book, The Accidental Billionaires, about the early days of Facebook.

Parker also served as an expert panelist at this year’s TechCrunch50 a few weeks ago.

Mr. Parker joins George Zachary, Keith Rabois, Adam Ross, Adam Pisoni, and David Sacks on Yammer’s board. The latter two serve as Yammer’s VP of Technology and CEO, respectively.

That is, of course, you subscribe to the music service for $12.95 a month. But if you do, or will, different music genres can be selected for your listening pleasure and streamed to the boombox over WiFi or a wired connection. Exciting.

Logitech Squeezebox Adds Music from Napster

FREMONT, Calif.–(BUSINESS WIRE)–Logitech (SIX:LOGN) (NASDAQ:LOGI) today announced that Logitech® Squeezebox™ network music players support online music from the award-winning music subscription service Napster®. Using your existing wireless home network and your Squeezebox player, now you can access Napster’s library of more than 7 million songs on the home-entertainment system in your living room, bedroom, or in any room where you listen to music.

“Logitech is delighted to add Napster to its family of online music services for the Squeezebox product line,” said Robin Selden, vice president of the Logitech Streaming Media group. “The Logitech Squeezebox is a Wi-Fi device, so you don’t have to string wires everywhere just to enjoy Napster away from the computer. Whether you love rap or reggae, Beethoven or classic rock, Napster and Squeezebox make it easy to listen to a world of music, streamed to any room in your home.”

Napster can deliver music, on-demand, through any Logitech Squeezebox network music player. Using Napster, you can choose from millions of songs from all major labels and thousands of independent labels, discovering old favorites and exploring new music from Napster’s playlists, new releases and Billboard charts.

“Napster, a pioneer of digital music, has always offered the ultimate in interactive music experiences, creating better ways to discover, share, acquire and enjoy music,” said Napster President Brad Duea. “Online music is growing more popular every day, and the link between Napster and a Logitech Squeezebox is a natural one. Together, Napster and Logitech are harnessing the potential of the digital world for music lovers everywhere.”

Napster is available for a free 30-day trial period to Logitech Squeezebox owners in the United States, Canada, United Kingdom and Germany. After 30 days, Napster is available for $12.95 per month (U.S.). More details can be found at www.logitechsqueezebox.com/napster or www.napster.com/squeezebox.

About Logitech

Logitech is a world leader in personal peripherals, driving innovation in PC navigation, Internet communications, digital music, home-entertainment control, gaming and wireless devices. Founded in 1981, Logitech International is a Swiss public company listed on the SIX Swiss Exchange (LOGN) and on the Nasdaq Global Select Market (LOGI).

Logitech, the Logitech logo, and other Logitech marks are registered in Switzerland and other countries. All other trademarks are the property of their respective owners. For more information about Logitech and its products, visit the Company’s Web site at www.logitech.com.

Best Buy will be acquiring Napster for around $121 million as the two companies have announced they’ve “entered into a definitive merger agreement” for Best Buy to scoop up all of Napster’s outstanding shares at $2.65. The deal will include all 700,000 Napster subscribers, Napster’s web-based platform, and key employees.

Best Buy already has a digital music initiative that’s powered by Rhapsody, so it’ll remain to be seen what happens with that. I’m guessing the company might just switch those users over to the new platform. We may also see Best Buy further develop its house brand of Insignia digital music players, possibly with some sort of package deals including Napster service.

Full release:

Best Buy to Acquire Napster

MINNEAPOLIS & LOS ANGELES–(BUSINESS WIRE)–Best Buy Co., Inc. (NYSE:BBY) and Napster Inc. (NASDAQ:NAPS) announced today that the two companies have entered into a definitive merger agreement for Best Buy to commence a tender offer for all outstanding Napster shares at a price of $2.65 per share in cash. The transaction, with an aggregate purchase price of approximately $121 million (or $54 million net of approximately $67 million in cash and short term investments of Napster as of June 30, 2008), is subject to customary closing conditions, including the tender of a number of Napster shares that constitutes a majority of Napster’s outstanding shares of common stock (on a fully-diluted basis). The transaction is expected to close during the fourth calendar quarter. The transaction has been unanimously approved by the board of directors of Napster, and Napster’s directors and executive officers have agreed, in their capacities as stockholders, to tender their Napster shares and otherwise support the transaction.

The proposed acquisition includes Napster’s approximately 700,000 digital entertainment subscribers, its Web-based customer service platform, and innovative mobile capabilities. In conjunction with the definitive merger agreement, Napster CEO Chris Gorog and key members of senior management of Napster have entered into employment agreements, effective at closing, pursuant to which they have agreed to continue as the Napster leadership post-acquisition.

Best Buy believes that Napster has one of the most comprehensive and easy-to-use music offerings in the industry, including streaming music, music subscriptions, the ability to purchase individual tracks, albums and mobile offers. Napster has approximately 140 employees, with its headquarters in Los Angeles. At this time, Best Buy does not plan to relocate Napster’s headquarters or to make significant changes in personnel.

“This transaction offers Best Buy a recognized platform for enhancing our capabilities in the digital media space and building new, recurring relationships with customers,” said 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.”

Best Buy intends to use Napster’s capabilities and digital subscriber base to reach new customers with an enhanced experience for exploring and selecting music and other digital entertainment products over an increasing array of devices. Best Buy believes the combined capabilities of the two companies will allow it to build stronger relationships with customers, expand the number of subscribers, and capture recurring revenue by offering ongoing value over a mobile digital platform.

“We believe Napster brings us excellent capabilities in the mobility space, as well as international operations and an established team of technology experts,” said Dave Morrish, Executive Vice President – Connected Digital Solutions of Best Buy. “We can foresee Napster acting as a platform for accelerating our growth in the emerging industry of digital entertainment, beyond music subscriptions. We’re very excited to add these capabilities to leverage our existing relationships with the labels, the studios, and the hardware providers. We believe Napster will be an outstanding addition to our already robust portfolio of partners and offerings in the digital music space.”

“We believe Best Buy will be an ideal partner for Napster and are very excited by the benefits that this transaction delivers to our shareholders, partners and employees. Best Buy is uniquely positioned to benefit from Napster’s digital entertainment distribution platform. We are looking forward to combining our digital media capabilities with Best Buy’s resources and global network to extend our digital content platforms,” said Chris Gorog, chairman and CEO of Napster.

Under the terms of the definitive merger agreement, Best Buy will commence a cash tender offer to purchase all of the outstanding shares of Napster common stock for $2.65 per share in cash, with a supporting recommendation from the Napster Board of Directors. The closing of the tender offer is subject to customary terms and conditions, including the tender of a number of shares that constitutes a majority of Napster’s outstanding shares of common stock (on a fully diluted basis) and expiration or termination of the waiting period under the Hart Scott Rodino Antitrust Improvement Act. The agreement also provides for the parties to effect, subject to customary conditions, a merger to be completed following the completion of the tender offer which would result in all shares not tendered in the tender offer (other than shares held by Best Buy, treasury shares, and shares held by Napster shareholders, if any, who properly exercise appraisal rights) being converted into the right to receive $2.65 per share in cash. The directors and certain officers of Napster have entered into agreements with Best Buy pursuant to which they have agreed to tender their shares in connection with the tender offer contemplated by the merger agreement and otherwise support the transaction.

Napster, which recently launched one of the world’s largest MP3 stores, had fiscal 2008 revenue of $127.5 million, an increase of 15 percent over the prior fiscal year; a loss of $16.5 million, an improvement compared with a loss of $36.8 million the prior fiscal year; and positive cash flow for the fiscal year ended March 31, 2008.

Best Buy intends to complete the acquisition using available cash. UBS Investment Bank served as the exclusive financial advisor to Napster, and Napster is represented by O’Melveny & Myers LLP. Best Buy is represented by Robins, Kaplan, Miller & Ciresi L.L.P.

Best Buy announced today that it has acquired Napster for $121 million in cash. The company said that it will keep Napster’s executive team and will leave the Napster service and its estimated 700,000 users in place without changing much in the near-term.

During the 2008 fiscal year ending March 31, Napster had revenue of $127.5 million, and a loss of $16.5 million. The loss was an improvement over its last fiscal year, though, when it lost $36.8 million.

Best Buy ostensibly believes that it can eventually make Napster turn a profit or, at the very least, provide a service that is valued by its customers (Best Buy inked a Napster distribution deal with the company’s then-parent company Roxio for $10 million in 2004).  But how does acquiring Napster help the company in any way?

Napster’s competition is simply too fierce and too far ahead for the once-popular service to stay relevant.

iTunes is the world’s largest music store and there’s no sign of that service losing the top spot any time soon. Worse, Amazon’s DRM-free MP3 store is coming on strong and now that MySpace is starting to get into the music game with free ad-supported streams, there’s little room left for Napster to cement itself in the market.

So where does Napster fit into that equation? Granted, it’s still servicing 700,000 customers and its revenue is quite high, but how much longer can it compete in an environment where at least three services are better and its user-base is minuscule compared to its competitors’?

Napster’s business model is simply too similar and too out-dated for it to compete in this market. The company uses a subscription-based model to let you download songs and also offers freenapster.com for those that want to stream music for free online. Of course, the only problem is the songs sound awful and paying $12.95 per month isn’t worth it to most users, given the success of iTunes and Amazon’s store.

And with new business models on the way from MySpace where it will try ad-supported streams, how can Napster regain its status as the most popular service in the industry by maintaining status quo?

Under the guise of “improving” itself, Best Buy has engaged in a mercy acquisition of Napster in the hope that somehow it will materialize into something worth using. Napster was always the haven for illegal downloads and ever since it went legit, it lost its allure and fewer people have found reason to use it.

Best Buy just wasted $121 million.

The new software would load only meta data about songs, videos, and other media onto a handheld device. It would then allow users to stream this media from their desktop computers on demand and even let them organize their iTunes libraries remotely (by adding, deleting, and moving files around). The main benefits come from saving space on your handheld device, where disk storage is scarce, as well as saving the time it takes to synchronize.

There’s been no official word from Apple on when or whether it plans to release this technology (it files patents all the time that go nowhere). But such a development could be seen as one step towards a streaming music service like Rhapsody or Napster, which have operated in stark contrast to Apple’s download model. However, the patent does not suggest that Apple plans to stream data from its own servers – just consumers’ own desktop computers, where they keep the music they have downloaded.

Apple could also be understood to be taking on at least one facet of Microsoft Mesh, which promises to make consumers’ personal files available to them on whichever device they use. Of course, MobileMe already goes to show that Apple has data synchronization on its mind – but perhaps there’s a broader trend here as well.

Streaming music service Rhapsody has joined the likes of Wal-Mart, Amazon, and Napster by launching an MP3 store.

Its move to offer unprotected music downloads has been anticipated since last Fall when Real Networks joined forces with MTV and Verizon. The Rhapsody MP3 Store offers music from all four major labels (Universal Music Group, Sony BMG, Warner Music Group, and EMI) at 99 cents per single and mostly $9.99 per single disc album.

While Rhapsody specializes in streaming music to paying subscribers ($13 per month gives you on-demand access to its entire music collection), this is not the first time Rhapsody has offered downloads. Most of its downloads have been protected by RAX-formatted DRM, although lately MP3 files have been mixed into its collection as well.

But with the launch of its MP3 store, Rhapsody fully endorses the idea that DRM is dead. And it goes toe-to-toe with the aforementioned DRM-free music stores, as well as iTunes Plus (whose files are actually in AAC format, not MP3), by providing over 5 million tracks that can play on virtually any music player without any restrictions. All songs will be provided with a 256 bit rate.

The Rhapsody MP3 Store sits to the side of the regular Rhapsody streaming music service on its own subdomain, but the two are also integrated with one another. Shoppers on the MP3 store site who are also paying subscribers can play full-length samples (non-subscribers can also play up to 25 full length samples per month). And subscribers have the option of buying and downloading the files they’ve enjoyed streaming but want to play when not at their computers (or connected to the internet).

The purchase experience is mostly browser-based; however, Rhapsody also provides a download manager that can automatically load songs into iTunes. Only Windows is supported at launch, with Mac support coming later.

Rhapsody is also working over the next couple of months to integrate its streaming and downloading functionality into Viacom’s network of music sites, including MTV, VH1, and CMT. It has teamed up with iLike as well to power music across all of that startup’s social networking apps and on its main website. Expect the same level of integration that we’ve already seen on MOG.

On related notes, Rhapsody is putting the finishing touches on its powering of Yahoo Music, which should go live soon so that Yahoo users aren’t simply redirected off-site. And it has just helped launch a new Verizon VCAST music service for getting its songs onto mobile handsets. With all of these partnerships, Rhapsody is working to become not only a destination but a platform for music distribution as well.

Streaming music may be the way of the future – especially when reliable and fast wireless technology becomes ubiquitous – but the launch of Rhapsody’s MP3 store goes to show that consumers still want to own their music – and control when and where they can use it.

Also see our round up of DRM-free music providers from last fall, which includes some of the more indie-focused services like Amie Street.

Napster’s had it up to here (pointing near the top of my head) and wants to regain its position as the King of Online Music. The new Napster web store opened its doors today and features six million DRM-free tracks, most for 99 cents apiece and most full albums for $9.99, according to Reuters. You can still opt for subscription pricing at around $15 per month if you have a Napster-to-Go compatible portable player.

With this new DRM-free structure, Napster hopes to win away fans of Apple’s iTunes, which also sells certain DRM-free tracks, although many other tracks use Fairplay DRM and can only be used on Apple iPod and iPhone devices (unless you burn the tracks to a CD and then rip them back into iTunes as unprotected MP3 files). Napster’s service allows you to automatically transfer any purchased tracks into iTunes as unrestricted MP3 files that can then be transferred onto an Apple device.

Napster [Napster.com]

The fact is that Napster is still unprofitable and still makes most of its revenue from all-you-can-eat subscription sales. Both AOL and Yahoo bailed out of this business, since consumers don’t seem to like it and the labels take all the revenues. Ian Rogers explained why that business sucks last year, right before he bailed out of Yahoo.

So Napster is making their big push into DRM-free sales, a market dominated by iTunes and increasingly Amazon. And…cough…BitTorrent. The days of paying for recorded music are nearly over. And there’s nothing Napster can do to change that.

Metallica gave hints in an interview with Rolling Stone that it will follow the Nine Inch Nails and Radiohead model of Internet-based music distribution. (You can already download live show MP3s and FLACs, for the record.) Says Lars Ulrich:

We’ve been observing Radiohead and Trent Reznor and in twenty-seven years or however long it takes for the next record, we’ll be looking forward to everything in terms of possibilities with the Internet.

Unfortunately for Metallica, they released an album called St. Anger back in 2003, universally condemned as the worst piece of recorded music in history. “Madly in anger,” really? What does that even mean?

Oh, and they also helped kill Napster. That’s not how you win friends.

via Slashdot

Eliot Van Buskirk was sick — sick! — of paying for music download services. Now that Amazon is DRM-free and offers lots of music, he decided to cancel all of his music subscriptions. Yahoo was the easiest at about 1 minute but it took him 30 minutes to cancel Napster and 10 minutes to cancel Rhapsody. This reminds me of trying to cancel my XBox Live and MS SPOT subscriptions. Microsoft hides most of their cancellation systems behind languid representatives in a call center somewhere in Bangalore, ensuring anger all around.

Why (And How) I Just Canceled All My Music Subscriptions [Wired]

Sorry for the delay, folks. I was busy fondling my Kindle yesterday and seemed to have left this one slip through the cracks. AT&T and Samsung announced the SLM yesterday, which is the first phone to feature Napster Mobile. On top of that it also has video share (3G!), stereo Bluetooth, and a 2-megapixel camera. Internal memory is a bit skimpy at only 50MB split between media and photos. The SLM will be available on the 23rd for $150 after a $50 rebate.

TC via Press Release

Starting mid-November, the service will allow AT&T customers to browse 5 million songs, preview samples of each song and purchase and download music from their mobile phones. Unlike a previous deal where some AT&T customers had free access to Napster, under this deal users will pay $7.49 a month for 5 songs or $1.99 per single, double the going rate on iTunes.

The deal is good news for the struggling Napster, who will gain exposure to AT&T’s 63 million customers at a time they are looking to sell the company.

AT&T also announced two new music applications: MobiVJ, a streaming video service, and VIP Access, a “mobile fan club and discovery service.” The MobiVJ music video channels cover eight genres and provide streamed video to AT&T customers for $6.99 a month. VIP Access allows customers to search artist biographies and discographies, sample new music, participate in polls and receive breaking alerts via text messaging services for only $2.99 a month.

However, the desktop client is only part of what’s holding the company back. Napster is still a subscription-centered service, which keeps them incompatible with the leading digital music player, the iPod (not a good idea, say industry experts). Consequently Napster has lagged behind Apple’s end to end iTunes system which reportedly controls 70% of the digital music market.

But the company is holding out for a glimmer of hope. Amazon has already crossed the chasm into open digital downloads. Christopher Allen, chief operating officer at Napster, forecasts that by the end of next year these DRM free MP3s will become standard. So far, only Universal Music Group and EMI Group sell music DRM free. However, with labels loving the iPod but hating the revenue split, other labels are sure to follow.

In other music news, Ars Technica is expecting iTunes to lower the price of DRM-free songs to $0.99. That’s still $0.10 more per song than Amazon is charging. Note our recently article on the inevitable march of recorded music towards free.

Napster is rolling out its over-the-air (OTA) music service on Japan’s NTT Docomo. The service lets Napster To Go subscribers download music onto compatible cellphones (so far, the 904i series). All songs downloaded onto cellphones can then be transferred to compatible music players and PCs. Can iTunes do that?

This is fun and all, and something many people wish the iPhone would be able to do right out of the box, but until Napster brings it over here, it might as well not exist. The monthly subscription fee seems like overkill if you’re the type of person who only downloads (well, legally) one or two songs per month. But good luck to Napster and all its future endeavors.

Press Release

Circuit City, Napster to offer joint music service [Reuters]

In a conference with Cingular/AT&T about their new service, Video Share, a mobile-to-mobile video chat service reminiscient of video chat in Europe. The service is rolling out this summer. The best part? They’re partnering with WWE and Napster for some video and music hotness.

Also, we’ll be seeing a new phone from Apple – something called the iPhone – officially available in June with no delays. The reps said data and mobile use is going to go through the roof when the device launches, suggesting some sort of all-you-can-eat plan (similar to what they have for Blackberry users or their 3G unlimited data plans).

Starting April 1, AT&T customers will have access to over three million songs through Napster To Go for an entire year, free of charge. This service applies to wireless handset users with the right plan as well as customers who have home phone and broadband triple-pack bundle services. What makes the deal even sweeter than the year of free service is the ability to stream music to a handful of devices, which include your PC, wireless handset and compatible PMP’s. There has to be a catch, right? Of course there is! New customers will qualify and existing customers who are outside of the traditional 22-state territory have to sign on for two years with the purchase of the Samsung BlackJack or SYNC.

Press Release [via Reuters]

Napster sells music subscriptions and the odd DRM’d download. Pay $10 per month and listen to any of the music in their library. This is a tricky, low margin business. There’s lots of price competition (see our comparison of the space here), and the labels and credit card companies take the vast majority of the revenue. In the last fiscal quarter, Napster had nearly $26 million in revenue but just $7 million of that didn’t go the labels and other costs of goods sold. Caving into this margin pressure, Virgin Music bailed out of the U.S. market just a few days ago.

Napster hired an investment bank in September to sell themselves. At the time they were losing $10 million in cash per fiscal quarter, and had $100 million in the bank. I called them unhealthy. Since that time, they’ve reported another fiscal quarter. They had stellar subscription growth, adding 48,000 subscribers. But they lost even more cash – another $11.6 million. This is a company with operating margins of -38%. And they were sued for patent infringement just a week and a half ago.

Now they’ve announced the acquisition of AOL Music’s subscription service. They’ll add 350,000 new subscribers, get promotion on AOL, and pay just $15 million in cash. It’s not a bad deal, except it adds more unprofitable customers to the struggling company, and the company’s war chest just got significantly lighter. That’s one less fiscal quarter Napster has in operating cash.

It’s unusual to see a company make acquisitions when it is itself on the market. Maybe this is Napster’s signal that the sales process isn’t going well. Or perhaps they just took this opportunity to further consolidate the market. Either way, I’m looking forward to next quarter’s financial results, which should be announced shortly.

One point of clarification. The New York Times reported that Napster paid just $43 per AOL subscriber, compared to their own valuation of $328 per subscriber. Their calculations were incorrect – they used the Napster stock price after the deal was announced, which had spiked sharply. And they failed to take into account that the majority of Napster’s market capitalization is from the $90 million or so they have in cash. Take those factors into account, and Napster’s per subscriber valuation is around just $90.