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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