TELECOM Digest OnLine - Sorted: MusicNet Sold to Private Equity Firm

MusicNet Sold to Private Equity Firm

Lisa Minter (lisa_minter2001@yahoo.com)
13 Apr 2005 12:53:04 -0700

Terms were not disclosed but a source familiar with the
matter put the deal's value at $20 million to $30 million.

RealNetworks, which owned about 40 percent of MusicNet, said it
received proceeds of $7.3 million and expects another $2.7 million
after escrow arrangements expire.

MusicNet provides the technology to run services for other brand name
digital music providers like AOL Music and Virgin Digital, rather than
offering downloads and subscription services directly to the public
itself.

MusicNet, formed in 1999 by RealNetworks, Bertelsmann AG, EMI Group
Plc Sony Corp and Time Warner Inc., which then owned Warner Music, has
said it serves more than 500,000 subscribers, mostly AOL customers.

Since its inception it has faced increasing competition from companies
like Apple Computer Inc., which has led the market with its popular
iPod player and iTunes service, and MusicMatch, which Yahoo Inc.
bought for $160 million.

The MusicNet sale was not unexpected since RealNetworks, which had
been MusicNet's main stakeholder, bought rival Listen and its Rhapsody
subscription service in August 2003.

RealNetworks posted MusicNet-related losses of more than $4 million in
2004, a RealNetwork spokesman said. The company said in a statement
late on Tuesday that it would provide more details about the deal
during its earnings call on May 4.

"RealNetworks had already indicated it was not going to put any more
money into MusicNet, and to the extent they needed capital, the
company was either going to have to be sold or get capital from the
other partners," said Phil Leigh, an analyst with Inside Digital
Media, a market research company.

Experts said MusicNet has struggled because its profit margins are
much lower than those of direct retailers.

Other MusicNet partners include Virgin Digital, HMV Group and Trans
World Entertainment.

MusicNet said it will be capitalized with the funds necessary to
expand the scale of its operations.

"This is a natural evolution for the company," said MusicNet CEO Alan
McGlade. "We've progressed nicely since the inception. Our partners'
interest was not so much a big return on MusicNet, but in creating a
legitimate marketplace. We have a good reputation in the industry."
McGlade said there would be no major changes as result of the sale.

MusicNet employs nearly 100 people, he said. (additional reporting by
Sinead Carew in New York)

Copyright 2005 Reuters Limited.

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