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Napster pays BestBuy $10m to promote music service

But cash registers will still ring up iPod sales

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Napster has followed its joint-marketing deal with British high street consumer electronics retailer Dixons by signing a similar promotional arrangement with US giant Best Buy.

In return for promoting Napster as its "leading" - but not, you'll note, 'only' - digital music service, Best Buy will receive $10m worth of shares from Napster's parent company, Roxio.

The promotional activities the pair have in mind include BestBuy offering a co-branded version of Napster via its web site and sponsoring "in-store marketing activities" and "extensive broadcast, print and online advertising".

Since the battle for dominance in the digital music market will almost certainly be won through brand and marketing, deals like this represent Napster's best hope for success.

Apple is committing big marketing resources to promote its iTunes Music Store, and other entrants, most notably AOL, MTV, Sony Connect and the upcoming Virgin Digital, are likely to leverage hardware sales, retail channels and brand awareness to promote their own services.

Napster will find that harder to do, thanks to the inevitable constraints imposed by working at a loss. Roxio's sales fell 17.5 per cent to $99.3m during its last fiscal year, 2004, while its loss ballooned to 348.5 per cent from $9.9m (51 cents a share) in 2003 to $44.4m (162 cents a share). Napster lost the company $9.8m in Q4 2004 alone.

Hence the need to enter into deals with the likes of BestBuy - companies that can afford to undertake the kind of marketing Napster needs but would be hard to undertake itself. Providing a stake in the business saves Napster having to pay out cash and gives its partner an incentive to promote the service.

How well that works out remains to be seen. BestBuy hasn't committed to promoting Napster exclusively. The Dixons deal is exclusive, but from what we've seen of Dixons stores of late, it may as well not be. The retailer seems very keen to sell iPods - thanks to their high ticket prices, no doubt - which are, of course, incompatible with Napster's service. Dixons isn't promoting ITMS, but every iPod it sells is de facto a gain for that service and one more customer Napster can't win.

BestBuy also sells iPods, with the same result.

Other, some of them better, many of them cheaper, portable music players are available of course, but few have had the promotional weight behind them that Apple has given to its machine. ®

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Peter Gabriel sells digital music firm
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