Online Music Consolidates with Rhapsody Napster Deal

Posted by at 11:30 am on October 3, 2011

Rhapsody shook up online music by buying Napster today. The deal will put the two streaming and download music services together. Cash involved in the deal wasn’t mentioned, but Napster’s now former owner, Best Buy, will have a minority stake in the combined service.

The deal is small enough that the two expect it to be approved and closed by November 30.

In making the deal, Rhapsody president Jon Irwin made clear that it was a market share grab, hoping to “further extend” a Rhapsody lead. Along with sheer subscribers, it should give some intellectual property and possibly features that Rhapsody doesn’t already have.

The acquisition is likely a direct reaction to the arrival of Spotify in the US. As the biggest music service in Europe and now enjoying a tighter link with Facebook, Spotify is expected to grow quickly and could overshadow the much older Rhapsody. Originally started by RealNetworks in 2001, Rhapsody was one of the first legal Internet services but was almost immediately eclipsed by Apple’s iTunes Music Store in 2003 as customers preferred the pay-per-track model at the time.

Rhapsody may be counting on a sudden swing back towards cloud music as faster landlines, 3G, and 4G make streaming more of an option. Rhapsody has had a pay-per-song store but usually considers it secondary.

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