A British music tech startup has struck a surprise $70m (£53m) deal to buy Napster, one of the pioneers of the music streaming revolution.
MelodyVR, which films and streams gigs fans watch with virtual reality headsets, is taking over Rhapsody International, which operates as Napster and is owned by Nasdaq-listed RealNetworks.
AIM-listed MelodyVR hopes to create a music platform combining Napster, which began life in the 1990s as an illegal downloading platform, with its immersive live performances. Napster, which has 3 million users, has a library of 90m licensed tracks.
The two-year-old British company, which has hosted gigs by acts including Emeli Sandé, The Chainsmokers and Cypress Hill, has enjoyed strong growth during the coronavirus pandemic, with fans turning to online entertainment as the live music industry ground to a halt.
The company set up safe studios in London and Los Angeles to enable artists to perform gigs, with fans paying to watch via its app. It has had 100 artists perform virtual reality gigs to date.
Anthony Matchett, chief executive of MelodyVR, said: “MelodyVR’s acquisition of Napster will result in the development of the first ever music entertainment platform which combines immersive visual content and music streaming.
“Our purchase of Napster, one of the music industry’s original disrupters, is born out of a wish to present a truly next-generation music service.”
Shares in MelodyVR, which is headquartered in London’s Soho and made a £15m loss last year, rose almost 3% in early trading to 4.4p, valuing the startup at £76m.
The company, which raised $15m from investors on Tuesday, has funded the deal through a combination of cash and shares. RealNetworks is to receive $26.3m: a $15m cash payment and the remainder as 200m MelodyVR shares, giving it a stake of about 11.5% in the business. The rest of the $70m deal involves MelodyVR taking on $44m in future payment obligations to music companies and other partners that are on Napster’s books.
Last year, Napster delivered 10.8bn streams to its consumer and business partners, making $113m in revenues and $1.8m in pre-tax profits.
The reverse takeover of the business marks the latest twist in Napster’s chequered 21-year history. Founded in 1999 by Shawn Fanning and Sean Parker, the service allowed music users to share music files bypassing the traditional record business and marked the beginning of the inexorable decline of the CD.
Lawsuits from the music industry and artists from Dr Dre to Metallica ensued and Napster filed for bankruptcy in 2002. It was snapped up by Roxio and re-launched as a legal business and was later bought by US electronics retailer Best Buy for £121m. On-demand streaming service Rhapsody acquired Napster in 2011 and adopted the brand name in 2016.