Sony and Time Warner Form Joint Venture with CDnow

Strategic Insights -

A significant development in the music industry, Sony and Time Warner, two multinational entertainment groups, are planning to form a joint venture with CDnow, the world's largest specialist online music retailer. The joint venture will involve the merger of CDnow with Columbia House, the direct marketing music club currently owned jointly by the music divisions of Sony and Time Warner. This strategic move highlights the growing importance of the online music market and underscores the industry's efforts to adapt to the rapidly changing digital landscape. The deal is expected to accelerate Columbia House's online expansion and strengthen CDnow by leveraging each other's expertise and customer bases.

Key Takeaways:

  • The joint venture will combine CDnow's online operations with Columbia House's traditional music mail-order business.
  • The new company will be owned 37% by Sony and Time Warner, with CDnow's shareholders owning 26%.
  • Jason Olim, CDnow's chief executive, will oversee the new company's online activities, while Richard Wolter will manage the traditional off-line business.
  • A group chief executive will be appointed to lead the new joint venture.
  • The deal aims to strengthen CDnow by providing access to Columbia House's 16m-strong customer base, with an estimated value of $2bn worth of music-related merchandise purchased annually.
  • CDnow currently has 2.3m customers, and the joint venture expects to persuade more of Columbia House's mail-order customers to buy online.
  • Sony estimates that 2m of Columbia House's 16m customers shop online, with operating costs lower online.

Statistics:

  • The joint venture will be owned 37% by Sony, 37% by Time Warner, and 26% by CDnow's shareholders.
  • CDnow currently has 2.3m customers.
  • Columbia House has a customer base of 16m, with 2m of them already shopping online.
  • The estimated annual value of music-related merchandise purchased online by Columbia House's customers is $2bn.
  • CDnow forecasts a second-quarter loss on revenues of less than $35m.

Sources:

  • Financial Times Limited, 1999