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DMGI merges with The Orchard

I met the founder of the Digital Music Group as he was getting ready to start the service, which he called the world's first all-digital music label.

Last week, Digital Music Group (DMGI) agreed to a merger with The Orchard. Reading through the details--summarized nicely by the New York Times--it appears that this is more of a buyout than a merger, with The Orchard owning 60% of the combined company, which will retain the DMGI name.

I met DMGI founder Mitch Koulouris back in 2004 when he was first raising money for the company, then called Digital Musicworks International (DMI). He and one of his associates (who's since moved on) were very excited about their business plan, which he called the first all-digital record label. Essentially, they would acquire the exclusive digital distribution rights to songs, then distribute these songs through iTunes and other major music stores. Of course, the major labels and most independent labels were already handling digital distribution along with regular distribution (and marketing--probably the label's most important job). So DMGI was going to focus on music that was in digital limbo, mainly back catalogs from artists whose labels had lost interest or dropped them, as well as unsigned artists and small physical labels who didn't want to handle digital distribution themselves.

At the time, I was puzzled. For independent artists, how was DMGI going to be any better than existing services like CDBaby? Well, like any other label, they'd market the heck out of their artists. Yes, but marketing is expensive, which is why most artists can't handle it themselves. So how would a company like DMGI, selling fairly obscure artists through an emerging medium--even three years later, CD sales still make up the vast majority of music sales--ever sell enough songs to cover those marketing costs? Well, like any other label, they'd hope for a breakthrough hit.

That was the end of our conversation, but I've checked the progress of the business from time to time since then. They went through some acquisitions and name changes, employees came and went, their IPO didn't do very well, and it drew its share of skepticism along the way. And somewhere along the way, the idea of marketing the heck out of their artists disappeared from their Web site.

Now, The Orchard emphasizes that it "aggressively" promotes and sells its artists' music--very similar to how DMGI was originally described to me. Now that digital distribution seems to be taking off, the long tail is taking the place of the big hits, and many of the traditional labels are struggling, perhaps this marriage is coming just at the right time.