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EMusic.com: Tuning Up for a Sell-Out?

While I still think that MP3.com (MPPP) is the premier online music site, this does not mean there are no other investment opportunities in the space.

In fact, there are strong signs of consolidation in the industry. Interestingly enough, big Net players are entering the business, such as AOL (AOL), which purchased Spinner.com.

An online music site worth considering is EMusic.com (EMUS) . True, the stock price has been erratic -- with a range of $4-1/2 and $35 (the price is now $16-1/8). But the company has been pursuing an aggressive acquisitions strategy.

Last week, the company made a particularly savvy move by purchasing Tunes.com, a company which had filed to go public. The price tag was $130 million, which looks like a bargain. With the deal, Emusic.com gets such marquee properties as RollingStone.com and DownBeatJazz.com. This rich content will be a great way to help spark e-commerce transactions of EMusic's 50,000 song library. What's more, EMusic got Internet Underground Music Archive, which is a site for unsigned bands.

In all, Tunes.com has 1.1 million registered users (which generate 28 million page views per month), which will likely be buyers of EMusic product offerings.

Also, in mid November, Emusic.com purchased Cductive.com for $38 million. The company has rights to 350 independent labels with 65,000 tracks, of which 6,500 are online.

The Emusic e-commerce approach is quite simple and is amenable to impulse buying. The music tracks are in MP3 format and sell 99 cents per song, or $8.99 for an album. The music can be downloaded on a hard drive or a portable MP3 player.

True, the financials are minimal. The reveues during the last quarter were a mere $180,000. Losses? Well, $13.7 million. However, by using its stock as currency to purchase content and registered users, EMusic can leverage itself to the point where it will, ironically enough, be a very attractive buyout candidate itself.

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