RealTime IT News

Loudeye Expands B2B with OD2 Buy

Loudeye's quest to become a global powerhouse in the digital music wholesale space got bigger Tuesday with its purchase of On Demand Distribution for $38.6 million.

The digital music distribution company emerged as the surprise winner in the bidding for OD2 with a cash-and-stock deal that would give it a significant entry to the lucrative European music distribution market.

The Seattle-based Loudeye, which sells digital music delivery systems to business clients, said the acquisition would create "the largest business-to-business focused digital media company in the world" and approximately double its revenues on a pro forma basis.

Once the merger closes, Loudeye plans to begin hawking wholesale services for DRM-protected digital music archives and e-commerce to a host of big-name retail clients throughout Europe.

OD2, founded by the singer Peter Gabriel, counts the likes of Coca Cola, MSN, MTV, Tiscali, Wanadoo, Virgin Megastores, HMV and Australia's ninemsn among its roster of B2B clients. The company's products support multiple languages and currencies and powers services for local catalog, licensing and royalty reporting across Europe.

Loudeye, which had previously only marketed its services in the U.S., also plans to expand into the cell phone music download market as well as video products.

"This will globalize Loudeye's content management, piracy protection and promotion services and will enable us to leverage OD2's broad reach and strong customer relationships to expand our business into new markets," Loudeye CEO Jeff Cavins said in a statement.

However, it will not be smooth sailing for Loudeye's entry into what is becoming a very competitive European digital music market. Roxio's Napster and Apple Computer's iTunes have already found initial success with music services in the U.K. and Sony Music's Connect service is preparing a launch in Europe before year-end.

By targeting the B2B space, Loudeye said it is hoping to "ease the barrier to entry" for rivals looking to deploy DRM-protected music services in Europe.

The European digital music market is considered among the most lucrative in the world. Annual sales of recorded music in Europe reached an estimated $11 billion in 2003. Forrester Research is forecasting that digital music sales in Europe will experience significant growth rates over the next three years, reaching approximately $1.6 billion by 2007.

But it is also a tricky and fragmented market where copyright laws differ from country to country and pricing issues are still to be sorted out.

Loudeye also announced a multi-year employment agreement with OD2's CEO Charles Grimsdale to become the president and managing director of the combined company's international business operations.