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. 

Just checked out Blogmusik.net, thanks to the folks from TechCrunch, who advise people to check the site out before it gets pulled.  Blogmusik offers on-demand listening to users via a Flash interface made to look like an iPod.  Search for an artist or song and you’ll get the results that you can start listening to right away.  Register and you can save songs to playlists.  Blogmusik seems to be a search and playback interface to various mp3 (and other?) blogs that publish music.  Think of it like a distributed version of Rhapsody — ie, when you access Rhapsody, your playlist accesses files on Rhapsody’s CDN.  Blogmusik points to files that are distributed on the sites of others but it is a similar on-demand listening experience.  I listened to songs from Yo La Tengo, Jack Johnson and the Beatles and they all seemed to be from servers that ended with a ".free.fr" domain.  I did listen to a Van Morrison song from www.paulhunter.info, so they must be deep linking to multiple sites.  The comments section in the TechCrunch post has more info on this.

The site seems to be very similar to the Hype Machine, which I recently blogged about here, only that it’s more focused on enabling the user to listen to a song rather than being a directory of various mp3 music blogs.  TechCrunch thinks that it’ll get shut down.  It seems to be offshore (in France).  I’m not as familiar with copyright law in the EU but I suspect it, or even the Hype Machine, would be on shaky legal ground at least here in the States.   While there isn’t anything inherently infringing about the technology (except perhaps the imitation iPod on Blogmusik), it’s hard to argue that most of their deep linking isn’t to copyrighted material that hasn’t been licensed by the copyright holder.  Of course it all starts with the blogs that post the MP3 files (sometimes with the permission of the copyright holder).  Blogmusik and Hype Machine simply make these more readily accessible.

The practice of posting MP3s on blogs and music-related sites is often ignored by the record labels (and even encouraged by some like Beggars/Matador that "gives away" an MP3 from each record they release).  I’m sure their marketing departments consider this promotion, as long as the blog doesn’t post the entire album, and especially if the post has a link to buy the music and/or a lower quality MP3 file.  But services like Blogmusik can effectively deliver an on-demand listening experience by aggregating access to a vast library of distributed tracks and enabling playlists (unlike Hype Machine), which could cannibalize sales of licensed music (whether via download, CD or even subscriptions).  I suspect they’ll be hearing from some label lawyers sooner or later though it’s a nice service.  I’ll be visiting it to sample music before deciding to buy — those 30-second clips just don’t do it for me.

On Friday, MySpace announced a deal with Snocap to enable MySpace bands to sell their music direct-to-consumers via technology provided by Snocap.  The timing of the announcement, on the Friday before Labor Day weekend, is curious.  As the article indicates, MySpace is in talks with the major labels so perhaps it’s a way for MySpace to gain leverage there.  At any rate, it represents MySpace’s foray into a new revenue stream, ecommerce, in a relatively low risk way.  I’m guessing they got great economics from Snocap primarily because this was a deal that Snocap had to do given the seeming lack of traction in its previous model of enabling p2p networks to legitimately distribute music (and credit to Snocap’s management for tweaking the business model accordingly).  Paidcontent.org also reports that Snocap is giving up equity as part of the deal, so MySpace/FIM gets additional upside as well.  While the white-label fulfillment business is a hard one to nail in digital music (see Loudeye for details), there may actually be more margin to be split up than normal because the independent artists on MySpace have little to no negotiating power especially relative to the major labels.  To sum up:

-Good deal for MySpace:  enables their indie artists to make money all at relatively low risk and additional upside
-Good deal for Snocap: puts them (back) on the map and with a distributor that can drive real volume
-Good deal for MySpace artists: they’ll be able to easily sell their music direct with no costs and such that they can set pricing.
-Little mentioned, but good deal for eBay/Paypal in the sense that Paypal will be the only payment mechanism at first due to its lower transaction fees. 

So does anyone lose?  Well the NYT article tries to paint this as another challenge to the labels especially in lights of the fact that the music from MySpace artists will primarily be sold in the MP3 format, which I’ve written about before.  David Card is quoted as saying he doesn’t think the majors will ever sell in MP3.  Fred Wilson disagrees.  That may be so, but there could be a greater threat, which is that of shelf space.  In the physical world, there were economies to be had with greater scale.  Even in the online commerce world, having hit artists and a strong catalog can translate into more promotion or better terms on sites like amazon, walmart, etc.  That’s why a lot of indies go with distributors like IODA and the Orchard (two companies that are no doubt wanting to license their repertoire to MySpace for its store).  But in a distributed retail model, an indie artist could ‘put up a shingle", ie their own store on their MySpace page and ask all of their friends to syndicate the store.  So if the total store is distributed with customers entering from many different entry points, the concept of end-caps and shelf space changes.   

But the labels won’t be big losers on this.  Their scale will surely manifest itself in whatever ways they end up working with MySpace.  Rather, the entry of MySpace into digital music retailing should raise eyebrows in Seattle.  Not RealNetworks but Amazon.  Or maybe it’ll be met with a yawn.  As the Economist recently noted in a special report on Amazon:

"At heart the company remains primarily a purveyor of old-world media: some two-thirds of its sales are from books, CDs and DVDs.
Whatever share of media ends up being downloaded, Amazon will miss out
unless it introduces its own service. The one it is said to have in the
pipeline has evolved in the past year from offering mostly music to
concentrating more on films and television shows, according to Advertising Age.
The trade publication says this is because Amazon’s executives felt
Apple’s grip on the music market would be too difficult to break."