Best Buy to acquire Napster for $121 million

The electronics retailer says the acquisition will allow it to expand its delivery of digital content.

SAN FRANCISCO -- Ending its long search for a corporate parent, Napster Inc. said Monday that it had agreed to be acquired by electronics retailer Best Buy Co. for $121 million.

The purchase price of $2.65 a share marked a nearly 100% premium over the Los Angeles-based digital music company's trading price, which has hovered around $1.30 in recent weeks. Napster has struggled to find a winning business model in the uncertain world of digital music, which Apple Inc. dominates with its iTunes store.

Minneapolis-based Best Buy said Napster would remain in Los Angeles with its current management team, led by Chief Executive Chris Gorog. The retailer said it bought the 140-employee company to bolster its digital supply chain, saying it planned to use Napster's technology and services to sell not just music but also videos, games and photographs.

"With Napster, Best Buy is trying to bridge the gap between physical and digital distribution as the physical slows down," said Michael Olson, an analyst with Piper Jaffray.

The news of the acquisition came as Napster shareholders were preparing to gather in Los Angeles on Thursday for what promised to be a contentious annual meeting. Three shareholders who said they wanted the company to look aggressively for a buyer had banded together to go after board seats.


But news of the deal, which is expected to close in the fourth quarter, prompted Napster to cancel the meeting. Gorog called the acquisition "very beneficial to our shareholders."

Best Buy said it had begun negotiating with Napster six months ago, before the dissident shareholders took their first steps. The investors' efforts did not affect talks or the timing of the deal, both companies said. "We're waiting to review the documents before commenting," said a source close to the dissidents.

Napster, which was previously named Roxio and bought its name from the defunct file-sharing network, has more than 700,000 subscribers who pay $13 a month to listen to a library of more than 6 million songs.

It also offers a free music streaming service called FreeNapster, which is advertising-supported. And in May, it opened its digital music store, which sells songs that don't have copyright protection.

The company recently posted a quarterly loss and said its subscriber base shrank to 703,000 from 760,000. Revenue fell 6% to $30.3 million.

Best Buy, the top U.S. electronics retail chain, has been on a mission to revamp its 970 stores so that customers have a wider selection of products and services -- as well as more guidance on how to set up their digital lives, said Dave Morrish, executive vice president of connected digital solutions at Best Buy.

Best Buy "will try to cross-sell the service with devices that are sold at Best Buy," Olson said. "That is more powerful than what Napster has been able to do on its own."

One of the winners from the acquisition could be the recording industry, which may see more sales if Best Buy becomes a bigger promoter of digital music. Gorog said the head of a major record label told him that the announcement of the Napster acquisition prompted the label to boost its sales forecast Monday.

"Everyone in the industry sees very plainly how this can create a more significant player in this exciting space," Gorog said.

[LA Times]

80% of All U.S. Album Sales

Here's an interesting quote in Billboard:

Billboard estimates the nine merchants who report to Nielsen SoundScan's Building chart -- Trans World Entertainment, Best Buy, Circuit City, iTunes, Starbucks, Borders, Target, Anderson Merchandisers and Handleman Co. -- comprise about 80% of all U.S. album sales.

Best Buy to Start Selling DJ Equipment

After Guitar Center, Best Buy stands to be the nation's second largest retailer for DJ equipment. I think it will be insane if we see Best Buy start selling some Martin lighting or even Phazon sound systems.

Best Buy to open in-store music centers

Disc jockey equipment is seen on display at a Best Buy in Downers Grove, Ill., on Friday, July 25, 2008. Hoping to cater to everyone from the garage guitarist to a recording musician, Richfield, Minn.-based Best Buy Co. Inc. is set to announce a massive new initiative that sets aside store space for an array of musical instruments and gear in dozens of sites nationwide. Best Buy's selection will include everything from accessories _ picks, sheet music and cases _ to high-end basses, guitars, keyboards and DJ equipment. Instruments will be housed in separate rooms and the company also plans to offer group music lessons. (AP Photo/M. Spencer Green)

Hoping to cater to everyone from the garage guitarist to a recording musician, Best Buy Co. Inc. is announcing a massive new initiative that sets aside store space for an array of musical instruments and gear in dozens of sites nationwide.

The nation's largest consumer electronics retailer will announce Tuesday that it plans to open as many as 85 of the music centers inside its stores by the end of the year and could add even more locations in the future, executives told The Associated Press.

Each site will use about 2,500 square feet of retail space and include roughly 1,000 different products with well-known brand names such as Fender, Gibson, Drum Workshop and Roland.

"We're not just extending the shelf space in the store, we're creating a designated area specifically for this experience," said Kevin Balon, the company's vice president of musical instruments. "And we're trying to create an authentic and genuine musical instrument store look and feel inside of Best Buy."

The Richfield, Minn.-based retailer — already an industry leader in sales of everything from digital cameras to video games — will use its headfirst jump into the $8 billion U.S. musical instrument market to carve out new revenue opportunities as sales of CDs and DVDs slow, experts said.

When the rollout is complete, Best Buy — already considered by many investors to be a global powerhouse in the electronics retailing world — will become the second-largest instrument seller in the country based on locations.

But some observers are cautious about whether the expansion efforts will reap big rewards, particularly as the nation's economy slows and consumers become even more particular about spending hard-earned paychecks.

"It's not a high-growth area and it's obviously going to take up a lot of real estate," said Morningstar retail analyst Brady Lemos.

Executives declined to comment on how much the company is investing in the project or how much they expect to gain from the store-within-a-store effort.

So far, ten sites are already open, including five in California, two in Illinois and two in Minnesota.

Best Buy's selection will include everything from accessories — picks, sheet music and cases — to high-end basses, guitars, keyboards and DJ equipment. Instruments will be housed in separate rooms and the company also plans to offer group music lessons.

Acoustic guitars will sell between $89.99 and $3,200 and drum kits will retail for as much as $5,000.

A selection of the offerings will also be available online in early August.

"However you want to play, if play means you're just learning and you want to play with a bunch of buddies, or you want to play on stage, we can support any of that," Balon said.

On the Net:
www.bestbuy.com

[AP]

Best Buy to sell Vinyl Records

Vinyl LP is back in mainstream rotation

Nearly killed off a decade ago by compact discs and digital music downloads, the mighty vinyl record is fighting its way back onto turntables across America.

Toe-tappers snapped up nearly 1 million records last year, a 15 percent increase and the highest level in three years, according to Nielsen SoundScan.

Though the LP never lost its luster to many audiophiles and the handful of independent music stores that kept healthy numbers of them in stock, mainstream retailers now are getting into the act.

The most recent is Richfield-based Best Buy Co. Inc., which is launching a pilot project at an undisclosed number of stores.

"We've got an executive here who's basically responding to his own children and is sponsoring a test to see if there's a market," said Best Buy CEO Brad Anderson, 59, with a big belly laugh, adding, "As an old vinyl collector, this is close to my heart."

Best Buy, the nation's largest consumer electronics retailer, is predictably tight-lipped about the test, to avoid artificially tipping the scales.

But even if the retailer ends up rolling out record sales nationwide, as competitor Circuit City Stores Inc. did years ago, no one expects vinyl to drive Best Buy's earnings.

Hymie’s co-owner Auralee Likes inspected a Johnny Cash record before putting it on the sales shelf. “Rap is somewhat responsible for keeping vinyl records around, because the DJs use vinyl,” Likes said.

For veteran album collectors such as Scott Johnson, who recently picked up a fresh stack at Arc's Valu Village Thrift Store in Richfield, the long-playing record's rise from throwback to comeback is a welcome sign.

"Music sounds great on vinyl if you get a nice, decent copy," said Johnson of Prior Lake, who said he is in his mid-40s. "You get a warm sound. You get the liner notes, cool artwork. ... It's more fun."

Records nonetheless remain a drop in the musical bucket, pulling in just 0.2 percent of total sales last year. CD sales, which have dropped precipitously in recent years as consumers have turned to digital downloads to stock their MP3 players, still make up 90 percent of the market. And the music industry likes vinyl because it can't be download illegally -- something nearly six in 10 consumers did last year.

But now that younger music lovers have discovered that the iPod and the turntable can peacefully coexist, retailers are taking note.

Amazon created a special section last fall just for record-lovers, even though it has been selling records online for more than a dozen years.

At Half Price Books, second-hand sales of vinyl have increased every year since 2005, when sales shot up 11 percent nationally and 21 percent in Minnesota, spokeswoman Kirk Thompson said.

Half Price Books traded about 85,000 records at its seven Twin Cities locations last year, an uptick of 11 percent.

Credit goes to rap

Rock LPs filled the bins at Hymie’s Vintage Records on Lake Street in Minneapolis. Vinyl record sales have been increasing at a healthy clip since 2004. Records nonetheless remain a drop in the musical bucket, pulling in just 0.2 percent of total sales last year. CD sales still make up 90 percent of the market.

Stop in at Hymie's Vintage Records, the Electric Fetus, Eclipse Records, Treehouse Records or Vintage Music Co., and you'll see "old fogy collectors as well as lots of younger kids" working their fingers over the rows of 12-inch-square record jackets, said Auralee Likes, co-owner of Hymie's.

Hymie's, on Lake Street in Minneapolis, is a mecca for record collectors. It sells mostly albums (and a smattering of eight-tracks) from its funky-colored store where a John Lennon towel hangs on one of its windows and "Pucker" the fox terrier greets customers.

"Rap is somewhat responsible for keeping vinyl records around, because the DJs use vinyl," said Likes, who owns Hymie's with Julie Wellman.

"The younger crowd hears the sample from the old records in the hip-hop, and then come in here and find out that this little sound is actually a whole album. ... It's like a library, you can learn so much."

At the Electric Fetus, the space for vinyls has nearly tripled in the past 18 months, retail manager Bob Fuchs said. While still a small slice of overall sales, vinyl has jumped from 2 or 3 percent a couple of years ago to 5 or 6 percent now, he said.

The Fetus will keep expanding floor space as long as customers keep buying. Considering that half of U.S. teenagers didn't buy a single CD in 2007, according to NPD Group, he might be on to something.

As part of a coalition of 30 independent retailers, Fuchs was none too pleased to hear that big-box retailers are taking interest.

"They'll get the exclusive Tom Petty or Rolling Stones LP because they have that kind of clout," Fuchs said. But "they'll miss the small things, because they don't have time to deal with them, nor do they have the knowledge."

More artists on board

More artists are giving LPs another spin as well, including recent releases from the Killers, Ryan Adams, R.E.M., Jack Johnson, Radiohead, Amy Winehouse and Elvis Costello. A growing number of artists also offer multiple platforms at once -- vinyl, CD and a coupon for a free download.

The multiple format satisfies the needs of some enthusiasts who claim that vinyl sounds better than digitized music (though there's some disagreement about that), and also gives consumers the portability they need to take music with them in their cars or while they jog around the lake.

But though many of those now scouring the record bins are trying to reclaim the vinyls they sold years ago, retailers say the resurgence of the record doesn't necessarily mean your dusty collection will be worth more.

Only LPs in mint condition get resold, and many aren't. And while Diana Ross might have serenaded you through your first love, only the rarest of records fetch much in the marketplace.

Then again, a picture sleeve 45-rpm record of a 1960s surfer-girl band the Honeys recently went for a couple of thousand dollars on e-Bay, Likes said.

[StarTribune]

Best Buy in-store scam leads to Worst Buy

Best Buy kiosks not connected to Internet

The Connecticut attorney general's office sued Best Buy in May, charging the electronics heavyweight with using deceptive in-store websites to trick customers into paying higher prices than available on the company's actual site.

"We thought Best Buy had addressed this," Connecticut Atty. Gen. Richard Blumenthal told me the other day. "That's what they said to us. Apparently that's not the case."

Apparently not.

Last week, Simi Valley resident Leigh Murphy, 53, went online in search of a new DVD player. He finally settled on a Toshiba model that he found on Bestbuy.com, marked down from $79.99 to $71.99.

He decided to stop by the store and buy it there instead.

"I just assumed the same price would be available," Murphy said. "That's why I didn't order it online."

He found the DVD player at the store without difficulty, but it was selling for the full $79.99 price. Murphy asked a salesman about the discrepancy. He said he'd found it online for less.

The salesman guided Murphy to one of Best Buy's in-store kiosks, which displayed a page virtually identical to the website Murphy had seen at home. He called up the Toshiba device and, lo and behold, no more markdown. It was going for the full list price.

Murphy, an engineer, wasn't sure what to make of this. So he returned home and went back online. Once again he visited Bestbuy.com, and once again the DVD player came up at the reduced price of $71.99.

So Murphy purchased the player online and then returned to the store to pick it up. But the experience left him wondering.

"It seems like they have one website online and a fake website that's available only in the store," Murphy said.

That's also what Blumenthal in Connecticut concluded after receiving numerous complaints from local residents. He called Best Buy's in-store kiosks "an Internet bait-and-switch" that allowed the store to charge higher prices once it got online shoppers through the door.

"Consumers seeking bargains were led to believe that lower online prices had expired or never existed," Blumenthal said. "Best Buy treated its customers like suckers."

Jerry Farrell Jr., commissioner of the Connecticut Department of Consumer Protection, said in a statement that the in-store kiosks appear to be "an intentional effort to mislead."

The state's lawsuit is proceeding.

Sue Busch, a Best Buy spokeswoman, acknowledged that customers may encounter different prices on the company's website than may be available in the store -- and at the store's kiosk.

"Bestbuy.com is the national price," she said. "Individual store prices may vary from market to market."

Busch said the in-store kiosks closely resemble Best Buy's website "for the sake of efficiency and to ensure that customers who were familiar with the national website could easily navigate the in-store kiosk to find what they were seeking."

She said the kiosks were never intended "for price-match purposes," but admitted that "a small percentage of customers did not receive a price match when they should have due to errors in policy execution."

Busch said that in response to the Connecticut attorney general's investigation, Best Buy placed a notice on its in-store site making clear that prices might not reflect what was available on the company's Internet website.

She added that store employees are trained to ensure that customers receive the prices they saw online.

To see for myself, I stopped by a Best Buy on L.A.'s Westside. I had no trouble finding one of the kiosks.

To access the in-store site, I had to click on a link marked "Bestbuy.com," which would seem to indicate pretty plainly that I was going to the company's website.

The in-store site was virtually indistinguishable from the actual website. Across the top were the same tabs linking to various product categories. There was also the same banner offering details for holiday deliveries.

The only significant difference was an inch-wide yellow strip sandwiched between the tabs and delivery notice that said, "This kiosk displays in-store prices -- which may differ from national Internet prices. Promotions can differ between stores and Internet. See your sales associate if you have questions."

The yellow strip disappears from view as soon as you scroll up the page.

Do most people understand that "national Internet prices" actually means prices available on Best Buy's own website? Do they understand that "Internet" promotions actually refer to sales on the real Bestbuy.com?

I put those questions to a Best Buy salesman.

"Every day we get at least one person asking why he can't find a price he saw online," the salesman replied.

I said I was looking for a DVD player I'd seen online that was selling for $71.99. I said it wasn't on the kiosk site.

"Here," the salesman said, "let me show you a secret."

He switched to a different screen, typed in his employee I.D. number, and the real Bestbuy.com came up. "Try now," the salesman said.

I asked why the real website wasn't available to everyone.

He shrugged. "I wish I knew."

Maybe that's something California Atty. Gen. Jerry Brown should also be wondering.

Source [LA Times]