Online music retailer CDnow may have injected the custom-CD industry with a much-needed dose of street cred by purchasing a young company called superSonic BOOM, a deal that was announced Tuesday. But it remains to be seen whether the move was shrewd or silly, given that personalized discs have yet to come into big demand.
The terms of the deal were not disclosed.
"You have no idea what CDnow bought it for, so it's hard to tell whether it's a steal," said Jill Frankle, analyst at International Data Corp. superSonic BOOM has 60,000 licensed titles, 12,000 of which are available in its catalog now. Among the labels offered are Eightball Records, Jellybean Recordings, Knitting Factory, Sony/ATV (Sony's country music catalogue), and W.A.R. Records.
Many figure the acquisition is a good move for the Number One music-sales site. CDnow (CDNW) held a solid 33 percent of the US$49 million online music-retailing market last year. N2K�s Music Boulevard was in second place at 12 percent, according to Jupiter Communications, which predicts the market could be led by anyone and will be worth $1 billion market by 2002.
"The fact that [CDnow] will be able to do custom CDs is a differentiator from other players, which [CDnow] needs in that online space," said IDC�s Frankle.
And buying up the latest tech is one way to stand out -- if it doesn�t send CDnow too much further into the red. The company lost $11 million last year.
Analysts believe that most companies with custom-CD-making capabilities plan to license their technology or partner with more than one online music reseller, which means the music sites won�t have a unique technology. But CDnow's move pre-empts that predicament.
"By acquiring superSonic BOOM, CDnow guarantees that it has exclusive use of that technology and any new capabilities under development," said Paris Burstyn, an IDC analyst.
Considering that Music Boulevard and online retail music stores like K-tel, Amazon.com, and Borders.com are all lining up to take on CDnow, the drive to have something new, original, and distinguishing grows ever more important.
A spokesman for N2K confirmed that customizable CDs are on the way soon: "They are in active discussions with several potential partners, and they will have news to report on that front shortly," he said.
Several snarls have kept the much-anticipated custom CDs from arriving en masse on the scene. The biggest stickler is that major labels have been hesitant to license hits until they�ve been on the market for about two years, when revenues from singles sales and radio play have died down. And none of the custom CD sites are revealing sales figures or Web-site hits, so the verdict remains out on whether people really want to own personal compilations.
But CDnow's purchase of superSonic BOOM could provide the litmus test and might even inspire some major labels to change their melody. CDnow certainly has online clout in the form of exclusive partnerships with the likes of Yahoo, Excite, GeoCities, WebCrawler, Lycos/Tripod, Rolling Stone Network, and MTV/VH1.
"CDnow's broad customer base and marketing power will help to establish custom CDs as a viable extension of current online retailing," said Ted Hooban, president of superSonic BOOM, in a statement. His company claims to be the first to offer custom CDs online and has been praised for its jazz catalog offerings.
CDnow was tightlipped on details of how the two companies will work together, but representative Marlo Zoda said, "We want this to be a fully integrated part of CDnow." She said the company has not set a date for the integration to be complete.
Meanwhile, superSonic BOOM, which launched in January 1997, will keep up the fight for more recent mainstream hits. "We are continuing to lobby the major labels, in hopes they will decide to participate," said Julie MacKinnon, CEO at superSonic BOOM. "We can add another revenue stream and another life cycle by repurposing their music, in the same way home video has added another life to the movies."
Most of superSonic's competition, which includes the likes of Custom Revolutions and MyCD, are seeking similar buyouts or licensing partnerships. CDuctive has gotten around the trouble by focusing on a music niche and forming exclusive partnerships with small labels, but even it is seeking more action from the majors.
But much of the competition welcomed the deal. Ed Bennett, president and CEO of custom-CD maker MyCD said, "This puts a focus on our industry and a real value on the customizable music."
