By Richard Menta - 5/21/01
The record industry has officially bought Net music. That is what happened when French media giant Vivendi Universal acquired MP3.com this week.
``MP3.com will be a great asset to Vivendi Universal in meeting our goal of becoming the leading online music service provider,'' Jean-Marie Messier, chairman and CEO of Vivendi Universal, said.
Messier is correct. If you can't beat them, buy them. Several months ago before Bertelsmann AG acquired Napster in a surprise purchase, The record industry was trying to conquer Net Music through the courts. At the time Napster had developed a user base of over 60 million users making it the most used service ever to exist on the Web. Those 60 million users set off a light bulb in Bertelsmann's head who purchased them and woke the rest of the industry up.
The environment is right for the music industry to spend some cash. With the availability of Venture Capital significantly curtailed due to the general Internet slump, Net music sites were weakened badly financially. Sites like Riffage and Atomic Pop ceased entirely, while others like EMusic struggled to rein in their high cash burn rate. The cost of litigation further served to drain resources from these companies making them vulnerable to takeover.
Buying these companies is good business for Big Music. These sites already established an online audience as well as a staff seasoned in Net music delivery. Several months ago, Universal only had its own web site and a promise of a Napster-like service coming in the future. Now it owns the two of the largest music delivery sites on the Net; EMusic, which it acquired in March, and now MP3.com.
With Duet, Universal's joint online music service with Sony, coming out in a few months, Universal will merge these forces into a giant online entity covering online music rental (Duet), paid MP3 downloads (EMusic), and free new music from mostly unknown artists (MP3.com).
The deal will cost Vivendi Universal $372 million in cash and stock. MP3 stockholder will get $5 per share in cash, Vivendi shares, or a combination of the two. MP3.com shares were up $1.80 on Monday, reflecting the offer.
So, who is next on the acquisition list? Music City's Morpheus? They are not nearly that big yet but they are growing. How about Aimster? They just lost the Aimster.com URL to America Online last Friday in a trademark battle (see Aimster Must Give Up Aimster.com URL to AOL). To stay alive, that company might also allow themselves to be taken over…at a bargain price.
This is the real business world folks, not just the music world. Fifty-something corporate CEO's have the tools to outplay twenty-something Net CEOs. The largest net music properties are now in the hands of the two biggest record conglomerates. Look for Sony, EMI, and AOL/Time Warner to pick up the most viable ones remaining.
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MusicNet and Duet: $20 per CD per YEAR!
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