Napster just announced that it had hired UBS to "evaluate strategic alternatives". Usually this means that they want to hire an agent to drum up interest from potential acquirers and create a competitive bidding situation. An agent is usually hired because it is, at best, unseemly for a company to shop themselves and, at worst, it reeks of desperation. The stock market bid up the stock about 13% today reflecting the premium that an acquirer might pay discounted for various risks.
As TechCrunch notes, while it may appear healthy on the surface, it is not a healthy company, having lost $10 M in its last quarter. Still, besides the $100 M pile of cash, it has other assets that will be worth something to someone else such as its 500 K-strong subscriber base, the technology/content licenses and the brand. What companies might be an interesting fit?
-Wireless carriers: Gene Munster of Piper Jaffray thinks these make a good fit (via TheStreet.com).
-Handset makers: More likely. Nokia recently bought Loudeye. Maybe Motorola or Sony Ericsson would be interested so as to offer it as a bundled feature on their phones.
-Cable or DSL Providers: Another fit if they bundle in as part of their offering (like Comcast does with Rhapsody).
Categories 1 and 3 are interesting in that those businesses are driven off of consumer-based subscriptions. The incumbents have billing relationships with tens of millions of consumers and so they ought to have very low subscriber acqusition costs relative to Napster as a standalone company — it’s the difference between ‘pressing a button’ to make Napster’s service an add-on vs. signing up for an account as you need to do today. Heck, I wonder if anyone’s done the math to see what sort of retention benefit a service like Napster would need to justify making it free across the board as a customer retention tool…if I have a library with playlists that I’ve set up, I’d definitely be less likely to defect to a competitor. The per-sub minimum provisions in the licensing agreements may preclude this but you get the picture: these companies could use (free/cheap) access to music as a loss leader.
Finally, don’t forget XM. While they’ve had their share of troubles, they work closely with Napster and adding the Napster capability to the base service could help differentiate themselves from Sirius (not to mention it would boost their subs numbers). They have plenty of cash ($430 M), and Napster, with its $180 M market cap, is but 5% of XM’s $3.6 B market cap.