Internet media network Yahoo! Inc. said on Thursday it plans to buy Webcasting company Launch Media Inc. for $12 million in an effort to boost its own music properties, which have failed to gain traction over the last two years.
Yahoo is betting that Launch, which designed a Web service that tailors Internet radio playlists to the tastes of individual users, would provide key features to complement its music services. Yahoo already offers music CD sales, downloads of digital music files and its own Webcasting efforts.
The company plans to pay 92 cents a share, which represents a 59 percent premium over Launch’s closing share price on Wednesday of 58 cents.
In afternoon Nasdaq trade, Launch shares were up 32 cents at 90 cents. The stock traded as high as $36.70 on the day of its initial public offering in April 1999.
For Yahoo, Launch represents an important piece of its music offering. “Webcasting is going to be an important part of the online music space,” said Forrester Research analyst Eric Scheirer. “Yahoo needs to get its act together if they want to compete in this area because the battle lines are being drawn. Just about every media company is making a push in music.”
The popularity of Napster song-swapping software has led many of the world’s largest media companies to make investments in the Internet music sector.
AOL Time Warner Inc. is planning a music subscription site. MTV’s Web site, owned by Viacom Inc., is aiming to be a major Webcasting and download presence. Vivendi Universal recently bought download site eMusic and is in the process of buying MP3.com Inc. (NasdaqNM:MPPP – news).
And the five major labels – Vivendi Universal’s Universal Music Group, Sony Music Entertainment, Bertelsmann AG’s BMG Entertainment, AOL Time Warner’s Warner Music Group, and EMI Group Plc – all have various alliances to create music subscription services.
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Yahoo hopes Launch will fill in some of the missing elements of the network’s music offering, namely Internet radio and a library of videos, said Ellen Siminoff, senior vice president of entertainment and small business.
“Those are some of the most compelling assets,” she said. “And they also give us a significant boost in a key demographic of ages 18 to 28.”
Launch Chief Executive David Goldberg expects Internet radio to capture a larger share of advertising dollars from traditional radio.
“Consumers are migrating toward consuming their music online from traditional radio because it’s a better experience,” he told Reuters. “Where the consumers go, the advertisers will follow.”
Yahoo’s music sites have received mixed reviews from analysts in the last year. “Yahoo in the last two years tried to build out its music properties into a one-stop shop to get everything from retail to downloads to radio, but they failed to garner the interest they hoped for,” said Jupiter Media Metrix analyst Aram Sinnreich.
“When it comes to music, users need to interact with a site that has personality,” he added. “Yahoo neither had the personality of Launch or MTV, nor did it have a ‘gee whiz isn’t this cool quality’ of a Napster.”
Sinnreich said the move symbolizes Yahoo’s push into the media business and away from the portal business, which has been hammered by the decline in online advertising.
Launch, like most of its standalone music competitors, has struggled in the wake of the burst of the dot-com bubble and competition with Napster, a service that allows Web users to download music files from other people’s computers for free without permission, in most cases, from artists, labels and publishers.
After a legal battle with the five major labels, a federal court earlier this year issued an injunction against Napster, forcing it halt access to copyrighted works identified by the labels.
But for many of Napster’s competitors, the injunction came too late, and many of those companies evaporated or were bought up.
Launch has also faced a legal battle with the five major record labels, which claim it failed to get proper licenses for music used in its service. The company said on Thursday it reached a settlement with the largest of the labels, Universal. The terms of the settlement were not disclosed.
Yahoo said it expects to complete the Launch acquisition in the third quarter. Launch would continue to be based in Santa Monica, California, and Goldberg and President Bob Roback, its founders, would remain with the company following the acquisition.
Yahoo has also extended $3 million in short-term secured debt financing to Launch in addition to the previous $2 million provided on a secured basis in May.