Best Buy Is the Lucy Ricardo of Music
If Best Buy (NYS: BBY) invites you to karaoke, don earplugs and run the other way.
The consumer electronics giant is unloading its Napster music subscription service on rival Rhapsody. Best Buy will receive a minority stake in the company after handing over Napster's subscribers and other assets.
Do you think that Best Buy is finally getting the hint? It doesn't belong in the music business. The chain may as well be I Love Lucy's namesake comedic damsel, always trying to get into hubby Ricky Ricardo's musical act despite the lack of talent.
"But Ricky," she would whine, "can I be in your show?"
Lucy Ricardo was always denied the opportunity and paid the price when she would try to scheme her way into the musical spotlight.
Best Buy is the same way. It blew it with Musicland, figuring that it could make retail CDs thrive just as the platform was peaking a decade ago. It then went for the wrong horse -- in the wrong race -- when it snapped up Napster.
At least Best Buy got a good deal on Napster, paying just $122 million three years ago. Napster had more than half that sum in cash and short-term investments, making Best Buy's final out-of-pocket price considerably less than that.
However, just as RealNetworks (NAS: RNWK) and Viacom's (NYS: VIA) MTV spun off Rhapsody last year, companies are discovering that it's hard to turn a profit with music subscription services. After all, if this was a lucrative niche don't you think that Apple (NAS: AAPL) would be all over this? Companies like Microsoft (NAS: MSFT) with its Zune Pass that are keeping music services going as a differentiator to iTunes may be missing the point about this just not being a viable business.
Pandora (NYS: P) and Spotify have disrupted the model with ad-supported freebies. There are limitations, but music fans don't seem to mind if we go by their booming growth.
So please, Best Buy, put the microphone down. Don't entertain the notion of ukulele lessons. Don't ask the karaoke DJ for some old-school Gloria Gaynor because you really don't have the chops -- or the track record -- to pull off "I Will Survive" on stage.
AddBest Buyto My Watchlist if you want to track the consumer electronics giant as it hits another bad note.
At the time this article was published The Motley Fool owns shares of Microsoft, Apple, and Best Buy. Motley Fool newsletter services have recommended buying shares of Apple and Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
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