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.

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