April 12, 2005 4:22 PM PDT

Labels, tech owners sell MusicNet to VCs

MusicNet, the digital-music service formed in early 2001 by RealNetworks and a consortium of big music labels, was purchased Tuesday by a private investment group.

The company said that Baker Capital, a New York-based investment group that specializes in communications and Internet companies, acquired full control of MusicNet from its previous owners, who included Time Warner, Bertelsmann, EMI Music and Sony Music Entertainment.

The buyout won't mean a radical change for the company, which serves as the wholesale music distributor for America Online, Virgin Digital, HMV and TransWorld Entertainment, executives said. However, the acquisition will funnel new capital into the company's coffers that will help it expand overseas and build new products, the company said.

"Having strategic partners like the labels in the early days was extremely valuable," said MusicNet CEO Alan McGlade, who said he would be staying in his position. "But we think it's a natural evolution of the business to move to a financial partner like this."

The sale highlights the big music labels' retreat from selling music directly on the Net, in favor of letting brands such as Apple Computer, Microsoft and Napster serve as online song stores.

MusicNet was part of a first generation of digital-music services formed in part by the labels to combat the perceived threat of file-swapping networks like Napster. Sony Music and Universal Music launched their rival service, Pressplay, at about the same time.

Those ventures drew critical antitrust scrutiny from the U.S. Department of Justice, but no charges were ever filed.

Pressplay was later sold to Napster. The MusicNet sale leaves Sony as the only major music label with a direct ownership stake in a prominent digital-music venture, through its relationship with the Sony Connect online store.

No financial details on the transaction were available.

 

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