Napster Wakes Up

Napster has said that a growing array of music-enabled cell phones should help grow the business. Analysts also pointed to its partnership with NTT DoCoMo (DCM), Japan's largest wireless carrier, which will sell handsets compatible with Napster To Go.

Also in the pool of potential pursuers are Internet companies. Yahoo! (YHOO) purchased Musicmatch in 2004, but Google (GOOG) doesn't have a music service and could be a contender, Munster says. Amazon.com (AMZN) recently debuted its movie download service, and music would make a logical addition.

The third, long-shot category could be broadband providers, Munster says, as companies "try and entice people to stick with their broadband service providers. I think you could see a music service integrated with those offerings."

Don't discount a certain hardware manufacturer, says another Napster watcher.

"The one that makes the most sense to me is SanDisk (SNDK)," says Darren Aftahi, vice president, equity research at ThinkEquity Partners, which makes a market in Napster but does not own shares or do banking.

"They have pretty good traction in the MP3 market -- that gives Napster a distribution platform," he says.

On Monday, SanDisk lent its support to RealNetworks instead. Real said its Rhapsody service will be integrated into SanDisk Sansa e200 MP3 players.

Though it lags far behind Apple, SanDisk sells the second-most-popular MP3 player.

Aftahi believes that Napster's subscription model will gain support as the capability on mobile phones grows. "You need to have the networks in place to deliver that data over the air, and you need to have the handsets to support it," he says.

With other digital media plays being picked off one by one, investors might want to get in on the company ahead of a sale.

"I think it's undervalued," Munster says. "Wall Street has basically walked away from Napster as a viable company, and I think they're missing the value of the Napster brand."

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