Rhapsody Adds Napster – and Maybe Some Overseas Subscribers

10/3/11Follow @curtwoodward

Rhapsody, the online-subscription music service that spun out of RealNetworks last year, is acquiring online music pioneer Napster from retailer Best Buy.

Seattle-based Rhapsody didn’t say how much it is paying for Napster, and it wouldn’t say how many U.S. subscribers it may add through the acquisition, but the company did say Napster was its closest competitor in terms of paid subscribers: “They are, by a big margin, the second-largest paid premium service out there,” spokeswoman Jaimee Minney Steele says.

And that figure could grow even further. Steele tells Xconomy that Rhapsody also has an option to acquire Napster’s foreign operations, which includes subscribers in the United Kingdom, Germany, and Canada.

That would instantly make Rhapsody an international music-streaming business, at a time when the company is facing encroachment from European streaming startup Spotify (and a bunch of domestic upstarts, like Rdio and MOG.)

Rhapsody executives planned to fly to Europe on Tuesday as the company starts its due diligence on potentially acquiring the international subscribers as well, Steele says.

And if that happens, it might make sense for the Napster brand to live on—although Rhapsody plans to “sunset” the cat-logo Napster name in the U.S., it isn’t known whether the company might keep that branding for any non-U.S. subscribers.

“Rhapsody is not an international company at this point, so we don’t have any branding in the United Kingdom or Germany or any of those markets,” Steele says. “We obviously want to capitalize on any goodwill they have over there, so we’re obviously looking at it.”

One thing that neither brand has is a free tier, which is a major marketing difference with Spotify’s freemium model.

Best Buy (NASDAQ: BBY) bought Napster in 2008 for $121 million.

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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