It was announced this morning that retail giant Best Buy will buy Napster for $121 million. Given Napster's $67 million in cash and short term investments, the net price of the acquisition is $54 million. Best Buy will offer $2.65 per share, a 94.8% premium over Friday's close.

In today's press release, Brian Dunn, President and COO of Best Buy, pointed to stronger relationships with its customers. "Over time we hope to strengthen our offerings to consumers, who we believe will increasingly seek devices and solutions that enable them to access their content wherever, whenever and however they want."

There is a good deal of head scratching going on over this deal. TechCrunch proclaimed that "Best Buy just wasted $121 million." It's far too early to say that with much certainty, but at best we're looking at coin toss odds. Subscription services have to overcome years of miscalculations and losses, stagnant products and increased competition from free services.

There are two key points in this acquisition. First, it is part of a larger plan to increase Best Buy's presence in the mobile market. By the end of the year, Best Buy will launch a $4.2 billion joint venture with British mobile giant Carphone Warehouse. Second, the Napster service can be sold (individually or maybe bundled) with products sold at Best Buy retail locations. It is this hands-on salesmanship that offers the most potential for Napster. Napster currently has about 700,000 subscribers. It would not take a huge increase in the number of subscribers to earn back the net purchase price in just a few years. And I do not think Napster has maxed out the number of subscribers it can have.

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