Rhapsody buys Napster to counter its Spotify envy

On-demand music service pioneer Rhapsody announced Monday it is acquiring fellow music provider Napster.

Since Napster is currently owned by consumer electronics retailer Best Buy, terms of the Rhapsody deal are a bit complicated: Rhapsody is acquiring Napster’s subscribers and certain other assets, and Best Buy is taking a minority stake in Rhapsody. Financial details of the transaction have not been disclosed, and the companies said the deal is set to close by the end of November.

The deal is just the latest example of how the rapid ascent of Spotify — the relative industry newcomer that GigaOM called “the new Napster” back in 2009 — is shaking up the on-demand music space in a big way. The Europe-based Spotify made its United States debut this past summer amid much fanfare and a splashy $ 100 million funding round. In recent weeks, Spotify’s star has risen even higher due to its integration with Facebook’s new music-sharing platform. Though Facebook partnered with dozens of other music apps such as Turntable.fm and MOG for its new music listening feature, it was Spotify CEO Daniel Ek who joined Mark Zuckerberg on stage at the f8 conference last month for the music platform’s launch.

Meanwhile, the deal makes the relationship between Spotify and Napster a bit more interesting. Napster co-founder Sean Parker is currently an enthusiastic and very public investor in Spotify. At a party in San Francisco last month to celebrate the Facebook/Spotify integration, Parker said “Spotify is actually what I dreamt of 10 years ago” while getting Napster off the ground.

But while Rhapsody and Napster may no longer be the hippest names in on-demand music, their relatively long histories mean that they each come with some serious assets. Rhapsody and Napster are currently the “two largest premium on-demand music services in the United States,” according to the press release announcing the deal, so bringing the two subscriber bases together is a very big deal. But only time will tell if together they can become serious contenders in today’s super social, Spotify-dominated world.

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