Sony and Time Warner have agreed to buy CDnow and will work with the online music retailer to combine a huge music website.
CDnow will combine with Columbia House, a music and video club that is jointly owned by Time Warner and Sony. The resulting company - still unnamed - will be owned 37 per cent each by Time Warner and Sony. CDnow’s existing stockholders will own the remaining 26 per cent.
The new company will sell records and videos from all record companies, although the emphasis will be on promoting Sony and Time Warner products. By the end of the year it will offer music that can be downloaded directly from the Internet.
“Through the alliance we are creating an exciting new enterprise that will be the centrepiece of our strong and growing presence in music and video ecommerce,” said Gerald Levin, chief executive of Time Warner.
“With the commercial arrival of the digital downloading of music, it also gives us an important platform for offering customers the opportunity to order or download music instantly."
The companies did not release any information on the technology it plans to adopt for downloading music from the Internet. Record companies have come under increasing pressure to develop a secure downloadable format in a bid to hobble the runaway success of Mp3.
Under terms of the agreement, Columbia House will continue to operate as a membership club selling music and videos. CDnow will concentrate on online music sales. Columbia House, which has 16 million members, sells over 15,000 titles, while CDnow offers more than 500,000.
CDnow, which has around 2.3 million customers, had revenues of $98.5 million in 1998 and estimated revenues of $71 million in the first half of this year, the companies said. The online retailer is still far from profitable. It reported a loss of about $19 million in the first three months of the year. In contrast Columbia House had revenues of $1.4 billion last year.
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