Best Buy's Napster Purchase

Best Buy, the big box electronics giant, just forked over a relatively small $127 million in cash (easy for me to say, right?) to buy Napster.

Two things:

1. Napster is over -- way over.

2. Napster isn't coming back.

Nonetheless, give Best Buy some credit for at least thinking out of their big box and understanding a reality that will affect them soon -- the next generation doesn't live in record stores. Often, they don't even live in electronics stores.

It's too early to tell Best Buy's end game here. The Napster they are buying has about 700,000 subscribers. It does about $30 million a quarter and has been operating cash flow positive for five quarters in a row.

Napster has had more comebacks than an actor in Ari Gold's Entourage stable. In its original role, Napster started the revolution that is killing the record industry and gave Apple's Steve Jobs some leverage with record execs when he pitched iTunes to them.

The original Napster had 25 million members (on the free model) around the turn of the century. But record industry lawsuits drove Napster into bankruptcy protection.

Young people have told me that they admired the original Napster -- after all, why not -- it helped them download free music. But when Napster became an also-ran subscription service, it fell out of favor on college campuses across the country.

It's too early to know what, if any, dramatic plans Best Buy has for Napster, but there is another lesson for all of us in the record, radio and even the new media business.

We keep trying to solve generational problems by guessing what the next generation wants.

Let's look:

Radio CEOs are so removed from the generation that got away that they really think putting terrestrial streams online is the answer.

It's not.

Not even close. You, my readers, know that the future lies in creating and marketing content explicitly for mobile, Internet and podcasting.

TV execs fail to get the monumental change that YouTube has wrought. They think making their TV shows available online in return for watching a short pre-roll commercial is the answer.

It's not.

YouTube fans are screaming "we want to be involved in this process and we want it shorter to assuage our shorter attention spans and, we want new content, too".

The record labels think that the original Napster and bit torrent sites that allow sharing music for free are the culprits.

They're not.

Not even close. The operative word for file sharing is free publicity. It's simply today's radio introducing music and bands to the public for next to nothing. The labels don't understand this which is why they are still suing the pants off a handful of people -- "examples" -- to no avail.

Newspapers actually led the way before the Internet and mobile phones were a factor. Their executives stuck their heads up their -- newsprint -- back when TV came along refusing to acknowledge that new technology was making it easier and faster to deliver the news than papers. They failed to get it even then.

My whole thing is generational media. Understanding it -- staying focused on the changes that take place seemingly every few months -- and making decisions based on what we're constantly learning. That's how Steve Jobs does it (and yes, it is intuitive to him). But we can learn to do the same.

HD Radio.

A non-starter with the next generation. Will you give me that the media must attract the next generation to be a growth industry?

Terrestrial radio.

Dying as the present available listeners die. Check the indicators. Monthly radio revenue is in an almost two year free fall. Ratings are declining in key demographics. Radio has lost its local monopoly because it gave it away in the name of cost cutting. Even by the CEOs' holy grail -- stock price -- a handful of good radio stocks trade for under $1 a share (even before the market meltdown of the past few days).

Record labels.

They think they're going to somehow pull a subscription model out of their heads and make up the difference between ever declining CD sales. Next generation isn't buying anything they don't want. They don't have to. They can steal it. Maybe it's time to understand the psyche that drives Gen Y. They're not bad. They just see things differently.


It's over. I'm going to do a separate piece on this in the coming days but TV execs have learned next to nothing from radio's decline.

You know what TV is to a young person?

A laptop computer.

And that changes everything.

Oh sure, TV conglomerates can buy their way into new technology -- or -- the TV industry could do what I'm recommending for all of us -- get in the trenches and stay in the trenches in an attempt to better understand what drives this elusive next generation.

So when I read about Best Buy stepping up to put Napster shareholders out of their agony by buying the company, I said -- so what? Unless they are capable of reinventing Napster (why?), they, too, have missed it.

I could find a lot of better ways to invest $127 million and earn a return on investment in tomorrow's generational media. Bet you could, too.

I want to reemphasize that I am not being critical of media companies for trying. The big radio consolidators have spent money over the years buying new media companies they really don't understand.

And that's key word -- understand.

I predict there will be plenty more of the same ahead because radio, TV, records and even new media are making decisions based on business principles, not real understanding of generational media.

Going forward, the best buy will actually be investing to better understand the massive next generation.

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