America Online Expands into Online Music Market with $400 Million Acquisition

Strategic Insights -

America Online is staking its claim in the growing market for online music with the acquisition of two music companies, Spinner Networks Inc. and Nullsoft Inc., for a total of $400 million in stock. This move signifies the increasing popularity of listening to music over the Internet, particularly with the upcoming availability of faster Internet connections that will enhance audio quality. The acquisitions are expected to increase significantly over the next few years.

Key Takeaways:

  • America Online acquired Spinner Networks Inc. and Nullsoft Inc. for a total of $400 million in stock, expanding its presence in the online music market.
  • Spinner's Internet radio site, Spinner.com, attracts 1.5 million listeners a month and broadcasts more than two million songs a day from a library of 175,000 selections.
  • Nullsoft makes Winamp, the dominant software used to listen to music in MP3 format over the Internet, and Shoutcast, which allows users to broadcast MP3-encoded audio over the Web.
  • About five million people have downloaded Winamp, which is free, and Shoutcast serves as the underpinning for several thousand homemade Internet radio stations.
  • Robert W. Pittman, president of America Online, said the company would make both products easier to use and generate revenue through advertising and deals with vendors that sell goods and services on America Online.
  • The new services will be promoted with AOL Plus, the broadband service that America Online plans to begin selling to some customers this summer.
  • America Online plans to create custom audio services for its different online holdings and include sports events, Internet radio, and recorded music in its programming offerings.
  • Analysts say the deals represent an important recognition by America Online of the growing demand for higher-speed access and services like audio and video.

Statistics:

  • America Online has 17 million subscribers (Broadcast.com: an aggregator of Internet audio)
  • About 15% of America Online subscribers (19 million) listen to music online while doing other activities
  • Spinner's Internet radio site, Spinner.com, attracts 1.5 million listeners a month
  • Nullsoft's Winamp has been downloaded by about 5 million people
  • Shoutcast serves as the underpinning for several thousand homemade Internet radio stations

Sources:

  • America Online press release (no date)
  • New York Times (February 28, 1999)
  • Jupiter Communications (no specific analyst mentioned)
  • America Online (no date)