By Richard Menta- 4/5/01
We predicted this day would come last January in our article titled "Who Will Buy EMusic". It wasn't a surprise, like other net sites EMusic, with only $10 million in the bank and running through its cash, needed a buyer. Unlike most Net music sites, EMusic had some very valuable assets that the major labels wanted and needed.
The most valuable asset EMusic has is a 10,000 customer user base who actually paid for their Net music. As we said in our article last January:
…EMusic has collected the largest list of digital music fans who are ACTIVELY paying for digital music downloads. This is the holy grail for the major labels who many feel have lost their opportunity to train Netizens that online music is something you pay for as opposed to something you trade for free…If you were Universal or EMI or Sony or Time Warner, you would want those 10,00 user names and data, the seasoned net music delivery staff Emusic has already developed, the Rolling Stone and Downbeat brand names, the possession of the digital rights of the independent record companies as well as your own. Most of all, you don't want Bertelsmann to have it, you don't want to give them the power.
Today, Universal Music Group (UMG) acquired EMusic.com and its assets.
When we wrote the above EMusic was selling for just under a buck. With the further collapse of the Net industry on Wall Street, Universal was able to snap the company up for half of that. The proposed acquisition price is $0.57 per fully diluted share (shareholders won't be happy with that low a price).
"Despite the obviously challenging business environment, we are extremely pleased with the continued strong growth of our downloadable music subscription service," said Gene Hoffman, EMusic president and CEO. "With our EMusic.com and RollingStone.com Web sites, our company has taken a recognized leadership position in online music, a market that continues to generate great excitement and interest among both vendors and consumers alike."
Universal plans to morph EMusic into its recently announced Duet service, a partnership between themselves and Sony. The EMusic acquisition means the two record labels don't have to tackle the cost and time demands of building a Net music delivery service from scratch. They also start out with an instant customer base of 10,000 users with a history of paying for Net downloads.
But, one of the best assets also picked up was the digital rights to thousands of tracks from independent labels that EMusic purchased over the years. This has a two-fold effect.
First, they own the Net rights to the music of their competitors, something the independents who signed with EMusic are probably not all that happy about. If EMusic folded, those rights would have reverted back to them. Now UMG has it and considering Universal's known market practices (that 50/50 split deal the independents now enjoy with EMusic can diminish with a little creative accounting on UMG's part) we might see a further tightening of the oligopoly that has driven CD's to the $19.00 list price range.
Second many analysts, including us, feel that for a new competitor to Napster to work, they must offer more than music from just one label. Duet will now have the music of the two major labels (accounting for over 40% of CD's sold) and the music of 700 independent labels.
When you think about it, do you know what the best thing of all about this buyout is for Universal? That Bertelsmann indeed did not grab it for themselves and create a Napster, EMusic, CDNow troika.
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