Updated from 11:22 a.m. EDT

A flurry of new products and deals in digital music has industry observers speculating that Napster ( NAPS), the name that started it all, could be the next company ripe for a takeout.

"We're seeing consolidation; we expect Napster to be part of the consolidation," says George Sutton, a managing director at Craig-Hallum Capital Group. Sutton, who follows Napster, does not own its shares, and his firm doesn't do any banking with the digital media company.

"We're continuing to get somewhat inundated with new models and new players, but it is going to be a big market ultimately," Sutton says.

A new line of Apple ( AAPL) iPods, and details on the holiday release of Microsoft's wireless-enabled Zune player, have contributed to the digital media fervor in recent days.

Another Napster rival, RealNetworks ( RNWK), announced that it will pay $350 million for WiderThan ( WTHN), a Seoul-based company that sells ringback tones, music and other mobile entertainment to more than 50 wireless carriers worldwide.

Digital music is also expanding at NewsCorp's ( NWS) wildly popular MySpace. The company recently announced a partnership with Snocap, a licensing service for digital music started by Napster founder Shawn Fanning that will enable musicians to sell songs from their MySpace pages.

The torrent of news, combined with a buy rating from new analyst coverage, sent Napster shares up 6.7% on Thursday, tacking on 23 cents to $3.67. On Friday, the stock was off by 6 cents to close at $3.61. Napster shares were recently trading at $3.53.

Napster's distribution platform, brand name, subscriber base and back-end technology make it an attractive company, analysts say. And the stock is cheap.

"They've got a hefty cash position that comes along with a transaction," Sutton says. The company last reported cash on hand of about $98 million.

Napster did narrow its losses more than Wall Street expected in its latest quarter, but it also guided lower for the current period and reported a 7% sequential decline in its subscriber base due to the introduction of its free Napster.com site.

However, the company said design changes to the page should prompt new paid subscriptions in the second half of the year.

Additionally, Napster's has a total paid subscriber base of 512,000, including 4,000 university subscribers, as of June 30, 2006. Excluding college subscriptions, which slow in the summer, paid subscribers grew 26% year over year in the June quarter.

Gene Munster, a senior research analyst with Piper Jaffray, says that companies in three different areas are likely Napster shoppers.

"The most logical is service providers, because music on phones is an emerging trend, and the service providers are trying to get up to speed quickly," says Munster, who has an outperform rating on the stock and whose firm makes a market in Napster.

Just last month, Nokia ( NOK) picked up Loudeye ( LOUD), giving the company the ability to sell music downloads to its customers, and Napster enjoyed a surge in its price on the news.

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."