May 18, 1999 5:00 AM PDT

CDnow, N2K strike first note after merger

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The first fruits of the CDnow-N2K merger come to light today as the new company launches its combined music site, aiming its efforts squarely at Amazon.com.

The new site, which will retain the CDnow moniker, looks a lot like its namesake but borrows heavily from the technology and features built into N2K's Music Boulevard. More important, nearly seven months after CDnow and N2K announced they would merge, the debut represents the combined company's first response to Amazon.com, which took a quick lead in online music sales after entering the market last June.

Despite its late entry into the market, the online retail giant had $50 million in music sales from June through December, which nearly matched CDnow's total of $56 million for the entire year.

But with online sales of packaged music expected to grow from some $374 million in 1998 to $2.5 billion in 2003, analyst Kate Delhagen of Forester Research thinks there is room for more than one big player in the market. Saying that the relaunch comes "in the nick of time," Delhagen expects the merger with N2K will help CDnow compete effectively with Amazon.

"Now they stand a definite chance to survive or to thrive in that specific category," Delhagen said.

Music Boulevard customers will notice the biggest change, as customers who try to access the Music Boulevard site will be redirected to CDnow. The new site replaces Music Boulevard's black background and loose design with a white background and tight, boxed design.

Once they get past the new look, Music Boulevard customers will encounter familiar features. Just like the now defunct site, the new site incorporates music news headlines into the home page and will soon offer music accessories such as CD racks and carrying cases, according to Jason Olim, president and chief executive officer of CDnow.

Customers of the old CDnow site used to have to find music from within one of 7 categories. Borrowing from Music Boulevard's narrower classifications, the new site organizes selections into 16 different genres.

CDnow customers may also notice a difference in prices, as the company will combine the discounts CDnow offered on its top-selling albums with the discounts Music Boulevard offered more generally throughout the site.

For CDnow customers, some of these additions might seem "subtle," Olim said. But CDnow will offer greater personalization, both through targeted email and custom stores. Taken together, these changes are "revolutionary," Olim said.

"This is a transformation for this company, this amount of change," Olim said.

Although CDnow already offers DVDs and videos, Olim said the site would essentially become a music portal, bringing "content, community, and commerce" to its music customers. The new site offers some 500,000 products, Olim said, including music and accessories, and will allow customers to download thousands of sound samples in RealAudio and MP3 formats.

"We've done more than anybody in the world to make a great e-commerce site or at least a great music site," Olim said.

Ken Cassar, digital commerce analyst at Jupiter Communications, said CDnow's focus on the online music market will give it an edge over Amazon. As Amazon continues to branch off into new areas, the online retailer will inevitably devote less resources to its individual stores, Cassar said. This could lead to loss of sales to more focused competitors.

"I would argue that we have probably seen the effect already, but it's impossible to quantify," Cassar said.

Of course, Amazon isn't conceding anything. Company spokesman Bill Curry said the company has heard charges before that it would be distracting by moving into new areas. But by focusing on the customers experience, Curry said, the company has managed to maintain its lead.

"If we can provide the best customer experience, the customer will want to buy more from us, rather than less from us," Curry said.

Ultimately, with its redesigned site, CDnow is trying to do the same thing, only for a more select set of customers. Amazon says it wants to be the leading online retailer; Olim said CDnow wants to be the leading online music site. While he challenges the assumption that Amazon has maintained its lead in music--the company refused to break out sales figures of its individual sites in its latest quarterly earnings statement--Olim said there can be more than one winner in the online music space.

"You've got two different businesses here," Olim said. "These are different business models that offer different things to the consumer."

Olim said CDnow would spend "a few million" dollars to promote the revamped site on- and offline in the next several weeks.

 

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