NEW YORK -- Sony and Time Warner are merging their jointly owned music club Columbia House with the online music retailer CDNow to form a new, publicly traded company.
Sony and Time Warner will each hold 37 percent of the new enterprise, and CDNow shareholders will own the remaining 26 percent, the companies announced Tuesday.Columbia House will continue to operate as a membership-based music club, and CDNow will remain an online music retailer with a wider selection of titles. Columbia House offers about 15,000 music titles, and CDNow offers more than half a million.
The deal provides important advantages to each side. The online retailer will get financial backing and cheap access to music put out by Sony and Time Warner, and the two media conglomerates gain a solid foothold in the emerging area of online music sales.
The new company will have its own stock, which will allow investors to value the online company at the high levels afforded other online businesses. It will also provide the preferred currency for future acquisitions and allow the company to lure management talent with stock options.
CDNow chairman Jon Diamond will leave the company after a transition period, and a search is under way for a new management team.
CDNow was an early arrival in the Internet arena, launching its online retailing of music CDs in 1994. Amazon.com leapfrogged CDNow as the top online music retailer last year, but CDNow remains a solid presence in the field and acquired a rival company N2K this year. Media Matrix, the online research firm, ranked CDNow as the eighth most popular shopping site in May with 3.3 million visitors.
The deal provides Sony and Time Warner, two major music companies, with an online vehicle for the digital downloading of music, a new form of music distribution that is just in its infancy.
Rather than buy a plastic CD, digital downloading would allow listeners to use their computers to download the contents of a music CD to their computers as data, then use a special player to hear it.
The music industry had been wrangling over a format that will make pirating difficult and ensure that music companies and musicians get paid the proper royalties for their work.