How well do these two pair? Years ago Circuit City decided to go a different direction from the new DVD format that had been agreed upon by technologists and studios and retailers, and they marketed a special DVD player that also played a proprietary DIVX disc, basically a DVD that would expire after 48 hours. It was a rental, rather than purchase, model.

It failed.

Fast-forward a few years and Circuit City itself is failing. Blockbuster tries a hostile takeover that is later withdrawn. Most pundits scoffed at the pairing. But I found it intriguing because Blockbuster sees its near-term future as a distributor competing with Netflix and long-term as a digital distributor competing with On Demand services. How would that fit with a retail chain?

Best Buy’s about to find out. The electronics big-box chain that’s killing Circuit City announced that it is buying Napster for a mere $121 million. Man, that is small. Napster has licensed several million musical tracks; it works out to about $15-$20 per licensed track. That doesn’t seem like much, but Napster as a stand-alone player in the download and subscription business has been struggling.

I’ve been watching Napster because I was an early adopter with their Napster to Go service, which I still use. Had they gone under, all of my songs would have gone away. You wouldn’t have heard me crying about it on Slashdot, though; I understand how these things work. But I know that Best Buy has sound financials so this should keep Napster afloat for awhile longer.

I just can’t figure out the business model. Best Buy says it wants to use the Napster platform and customers to start exploring distribution of more creative works in new ways. I look forward to that. But I’m not sure why Best Buy wants to be in the distribution business. As Apple has demonstrated with its financially anemic iTunes and its cash cow the iPod, better to be in hardware than distribution. (Also, look at all of those online distribution companies that show up at each Digital Hollywood until their venture capital money dries up.)

Best Buy sells hardware, and while the margins are thin on TVs and surround-sound systems, they more than make up for that in high markups on Monster cables and with extended warranties. It’s a formula that’s spread them across the country.

Note I didn’t say the place to be is the creation end of the supply chain. In theory it should be; after all, content is king, and as Sumner Redstone said awhile back, “copyright is even more right in the digital age.” It’s true that an iPod or a Napster service or a 58″ plasma TV serve no purpose without creative works. But it’s becoming so easy for those works to be hijacked, sometimes even before completion, that many creators are questioning whether it’s worth it to create. That will only increase as pressure builds to let what is possible online become legal online, and the copyright incentive so cherished by creators for centuries will rot away. I have no idea what happens to the value chain then, but at that point $121 million for Napster seems absurdly high.

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This entry was posted on Monday, September 15th, 2008 at 3:42 pm by Patrick Ross and is filed under copyright opponents, creators, licensing, market forces. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.