Artistdirect lands cash, big music labels' support

The online music provider scores a major alliance with four of the five major music companies in a deal that includes a $97.5 million equity investment.

2 min read
Online music provider Artistdirect.com has scored a major alliance with four of the five major music companies in a deal that includes a $97.5 million equity investment.

The strategic relationship with Sony Music Entertainment, Universal Music Group, BMG Entertainment and Warner Music Group comes four months after Encino, Calif.-based Artistdirect filed with the Securities and Exchange Commission to sell shares to the public.

The SEC application now will have to be modified, as Artistdirect raised more money in this recent deal than the $86 million it had anticipated raising in the initial public offering.

Along with the record companies, Cisneros Television Group and Yahoo also have formed relationships with Artistdirect; Yahoo has taken a minority equity stake in the company.

Artistdirect executives declined to comment on today's announcement, citing an SEC-mandated quiet period. But one industry analyst described the deal as a significant one for all parties.

"What this means is that record labels are trying to neutralize the threat of online music companies by partnering with them," said Aram Sinnreich, an analyst with New York-based research firm Jupiter Communications.

Representatives for Sony, Universal, BMG and Warner could not immediately be reached for comment regarding the deal. But with these big hitters on board, Artistdirect will be able to offer more information and products associated with many more artists than it has been able to in the past, Sinnreich said.

"It is a major score for them," he added.

The partnerships point to a growing Net music waits for its cue (year in review) concern by music companies that are scrambling to develop businesses, either alone or with partners, to distribute music online while preserving copyright and royalty protection. In the past year, dozens of sites have launched or have been updated in an effort to attract the growing legion of wired music fans.

One upstart Net music company, MP3.com, is a music collective of some 28,000 bands that post their songs online as downloadable files. The site has taken off in popularity and enjoyed a successful IPO of its own in July 1999.

This popularity has forced major record labels to recognize the growing interest in online music and take action.

Artistdirect offers music fans an easy way to find information on favorite recording artists, including touring schedules and downloadable songs, by putting the artists' name in the site address. For example, to find tour dates and other information on the alternative band Korn, fans can log on to "www.korn.com," which is part of Artistsdirect's network. Other artists in the network include Aerosmith, the Backstreet Boys, Chris Isaak, the Foo Fighters and Pearl Jam.

In doing so, the company lets artists capitalize on their own brands, which are already in demand with fans. Instead of going to a general online music site and having to search around for their favorite band, through Artistdirect, fans can quickly find content and information on bands.