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"Record Giant Universal Buys ligamusic.com"
Pros: Universal Music Group agreed yesterday to pay about $24 million to buy
Cons: Ligamusic gives Universal, a subsidiary of French media conglomerate Vivendi Universal, more components to add to its evolving online music plans.
Summary: Universal Music Group agreed yesterday to pay about $24 million to buy <a href="http://ligamusic.com">http://ligamusic.com</a> Inc., the Redwood City startup that struggled to sell downloadable songs at a time when Napster has turned free music swapping into a worldwide fad.
The deal is the latest in a spate of announcements in the past week from music and technology companies hoping to cash in on the growing popularity of Internet music.
Ligamusic gives Universal, a subsidiary of French media conglomerate Vivendi Universal, more components to add to its evolving online music plans.
Ligamusic operates music Web sites Rollingstone.com and Downbeat.com, which feature content from the popular entertainment magazines Rolling Stone and Downbeat.
"Those are two of the best trademarks in the music business, offline and online," said Larry Kenswil, president of Universal Music's ELabs technology division.
Ligamusic also owns the exclusive online distribution licenses to sell about 165,000 songs from 700 independent record labels in the MP3 format.
The 3-year-old company once called Goodnoise started by selling downloadable songs and albums, but late last year began a subscription service charging members a minimum $10 per month. The company said it has about 10,000 subscribers.
But crosstown rival Napster Inc., which counts about 71 million users who don't pay anything to download the most popular MP3 recordings, severely undercut Ligamusic's market. Ligamusic posted a net loss of $8.7 million (21 cents per share) on revenues of $4.7 million for its second quarter, which ended Dec.
31. In January, the company fired 66 workers, about 36 percent of its staff.
Stock in Ligamusic fell as low as 16 cents per share in the past year, and the company faces delisting by the Nasdaq Stock Market. Analysts said Ligamusic's future as an independent company was in doubt.
"The capital market died in the past year and that really put their backs against the wall," said George Nichols, stock analyst with Morningstar.com. "That's why what they needed to do was find a deep-pocketed suitor."
Universal, the biggest record company with labels like A&M Records and Motown Records, agreed to pay 57 cents per share for all of Ligamusic's outstanding stock. The price represented a nearly 30 percent premium from Ligamusic's closing price of 44 cents per share Friday. Ligamusic rose 9 cents per share to close at 53 cents yesterday.
"We see this as a site that should be bigger than it is," Kenswil said. "Ligamusic has amassed a great catalog of independent product that otherwise we have no access to."
Universal hopes to use Ligamusic to build its downloadable music business. Universal is also part of two other Internet music ventures, one with rival Sony Music Group and Yahoo Inc. and the other with the Internet arm of MTV.
Ligamusic and Universal can call off the deal if not completed by June 25.
"We believe that this transaction is in the best interests of our stockholders," Ligamusic CEO Gene Hoffman said in a statement.
Meanwhile, lawyers representing Napster and the world's biggest record and music companies are back in federal court in San Francisco today to discuss whether Napster is doing enough to block certain copyright-protected songs.
Napster is operating under a preliminary injunction ordering it to block songs owned by the companies suing for copyright infringement. In a report filed in U.S. District Court last week, Napster said it is filtering a total of about 1.71 million song files. But the recording industry claims Napster is still letting users download the vast majority of the contested songs.
