Bertelsmann buys CDNow for $US117M

Germany's Bertelsmann is to acquire the money-losing online music retailer CDNow Ifor approximately $US117 million

          Germany's Bertelsmann is to acquire the money-losing online music retailer CDNow Ifor approximately $US117 million

          Bertelsmann will pay $3 cash per share, the company said. CDNow went public at $16 per share in 1998.

          CDNow has been actively seeking a buyer since a planned merger with Columbia House collapsed in March, leaving the company short of cash.

          The German media conglomerate will advance CDNow approximately $42 million to pay off existing loans and fund ongoing operations until the merger is finalised in the third quarter of this year, said Bertelsmann spokesman Markus Payer. "It's a perfect fit with our plan to become a global leader in content and e-commerce," he added.

          CDNow will continue to operate under its own name from its Fort Washington, Pennsylvania, base, Payer said, but will be integrated into the Bertelsmann e-Commerce Group as the music distribution center for online, mobile and broadband platforms.

          Carsten Schmidt, an analyst with the Gartner Group in Amsterdam, remarked that Bertelsmann is shifting its priorities in the direction of e-commerce. "From a strategic point of view, it makes more sense than their portal strategy, when they bought into AOL (and) started AOL Europe," he said.

          However, Bertelsmann faces some overlap between CDNow and two other online retail sites it controls, Barnesandnoble.com in the United States and BOL.com in Europe,

          "Having three online stores which compete against each other doesn't make sense," Schmidt said. "CDNow is in both markets, and Barnes and Noble and BOL sell quite aggressively in Europe. It will be interesting to see how they solve it."

          Payer responded that the different brands are strong enough so that they can complement each other. "It is creating traffic and synergy between different brands. From the perspective of the consumer, it's providing different entries to the online shopping world," he said.

          Schmidt commented that Bertelsmann has the opportunity to target serious book and music lovers with the Barnes & Noble and CDNow brands. He said those customers might not buy from a diversified retailer like Amazon.com, which has been characterised as "an online Wal-Mart."

          "If a site specialises in books, you trust them better," he said. "You wouldn't go to Wal-Mart and ask them which book is better, but you would if you go to Barnes & Noble. I think the same is true building these music brands; they have to really focus on the book audience, focus on the music audience, and really become the trusted player in this field."

          Bertelsmann, in Gütersloh, Germany, can be reached online at http://www.bertelsmann.de/. CDNow can be reached at http://www.cdnow.com/.

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