Loudeye Acquires OD2 to Create World's Largest Business-to-Business Digital Media Company
June 22 2004 - 4:05AM
PR Newswire (US)
Loudeye Acquires OD2 to Create World's Largest Business-to-Business
Digital Media Company Acquisition Expands Loudeye's Global
Leadership Into Europe With Over 35 Digital Distribution Customers
Including Coca Cola, MSN, Virgin and MTV Across 12 Countries
SEATTLE, June 22 /PRNewswire-FirstCall/ -- Loudeye Corp.
(NASDAQ:LOUD), the worldwide leader in business-to-business digital
media solutions, today announced that it has acquired privately
held On Demand Distribution Ltd (OD2), the largest digital music
provider in Europe. The combination approximately doubles Loudeye's
revenues on a pro forma basis and creates the largest
business-to-business focused digital media company in the world,
providing outsourced digital media solutions to the vast majority
of the world's digital media businesses. The combined company now
serves more than 200 customers in 15 countries, adding premier
European customers such as Coca Cola (UK), MSN (Pan-Europe), MTV
(Pan-Europe),Tiscali (Pan-Europe), Wanadoo (Pan-Europe), Virgin
Megastores (UK), HMV (UK), Karstadt (Germany), ninemsn (Australia)
and numerous other significant retailers, portals, telcos,
commercial radio stations and ISPs throughout Europe and Australia.
"By combining with OD2, the leading digital music service provider
in Europe, we become the largest business-to-business digital media
provider in the world with the largest licensed digital music
catalog in the industry," said Jeff Cavins, Loudeye's president and
chief executive officer. "This significantly strengthens our
solutions for our customers globally and immediately expands our
customer relationships and partner opportunities. Together OD2 and
Loudeye deliver a powerful, next-generation digital media platform
to enable companies to launch complete digital music offerings
around the world. In addition, this will globalize Loudeye's
content management, piracy protection and promotion services and
will enable us to leverage OD2's broad reach and strong customer
relationships to expand our business into new markets." "OD2 and
Loudeye share virtually identical goals, vision and passion for the
future of digital music and I see tremendous opportunities for our
combined company to drive digital media deployments worldwide,"
said Charles Grimsdale, co-founder and chief executive officer of
OD2. "Our proven success managing the specific challenges of
pan-European digital media deployments will be a strong asset for
Loudeye and significantly raises the barriers to entry for other
service providers looking to enter the European market.
Furthermore, Loudeye will enable us to offer a much broader range
of new services to our current customers and extend our
capabilities into such fast growing areas as the wireless arena."
Large Market Opportunity Today's news supports Loudeye's commitment
to providing global services by broadening its reach and
capabilities into new, key geographic regions including Europe, the
second largest music market in the world, and Australia. Annual
sales of recorded music in Europe were $11 billion in 2003, with
the digital download and subscription market segments growing very
quickly. Forrester Research is forecasting that digital music sales
in Europe will experience significant growth rates over the next
three years, reaching approximately $1.6 billion by 2007. As a
result of this combination, Loudeye provides its distribution
customers access to the most advanced B2B digital media platform,
the broadest licensed digital music catalog and the widest
geographic reach in Europe, supporting digital music stores in the
United Kingdom, France, Germany, Italy, Spain, Austria,
Switzerland, Ireland, Denmark, Belgium and the Netherlands, with
additional presence in Australia. OD2's digital media solutions
support multiple languages and currencies and manage the
complexities of local catalog, licensing and royalty reporting
across Europe. The combined company will have the largest licensed
music catalog of any provider in the world, including 1.3 million
tracks licensed for Europe from the five major labels as well as
hundreds of independent labels including AIM, Playlouder, Naxos,
Zomba, V2, Saregama and Beggar's Banquet. In addition, OD2 provides
best practices and proven business-to-business technology
experience, developed from years of deploying and supporting
customers in Europe, which will further enhance Loudeye's next
generation Digital MusicStore offering. "The first phase of the
digital media revolution was the development of technology
platforms that could deliver digital content in a high quality and
protected manner. Today, the emphasis is rapidly shifting to the
delivery of compelling electronic merchandising and monetization of
digital content. Now for the first time there is a global company
that can help any business extend their customer relationships with
digital media merchandising, and launch their own branded customer
experience" said Anthony Bay, Loudeye's chairman. "Loudeye offers
content owners the means to truly achieve global distribution and
protection of their digital content, and enables a wide variety of
businesses the means to take advantage of the power of the digital
media marketplace." Transaction Terms Initial consideration will
total approximately $20.7 million, and will consist of up to 13.95
million Loudeye shares valued at approximately $18.4 million at
closing, and an aggregate cash payment of approximately $2.3
million to retire certain liabilities. Loudeye also agreed to pay
approximately $17.5 million over the next 18 months, and provided
the selling OD2 shareholders the right to earn up to an additional
$18.8 million based on OD2 achieving certain growth and
profitability targets over the next 30 months. Loudeye may satisfy
all future consideration obligations in cash or, subject to
approval of Loudeye's shareholders, in Loudeye shares, the number
of which will be determined based on Loudeye's share price prior to
issuance. Future consideration is payable in UK pounds and the U.S.
dollar amounts set forth above may vary with fluctuations in the
exchange rate. The shares to be issued by Loudeye in the
transaction have not been registered under the Securities Act of
1933 and may not be offered or sold in the United States absent
registration or an applicable exemption from registration
requirements under the Securities Act. The acquisition will be
completed pursuant to a tender offer made today by Loudeye for all
of the outstanding share capital of OD2. More than 90% of OD2's
shareholders have already accepted the offer, and Loudeye has
effectively acquired such shares. The remaining shares are expected
to be acquired on the same terms no later than October 2004
pursuant to compulsory sweep-along provisions provided for under
English law. Loudeye has also entered into a multi-year employment
agreement with Charles Grimsdale, OD2's co-founder and chief
executive officer, who will become the president and managing
director of the combined company's international business
operations, effective immediately. This will help ensure the
stability of OD2's current client relationships and facilitate
continued growth and global expansion of the business. The senior
executive team of OD2 has also entered into employment agreements
and will remain in their respective roles to facilitate continuity
of operations in Europe and leverage their deep customer and
international experience to drive Loudeye's business worldwide. OD2
Business Overview Founded in 2000 by music legend Peter Gabriel and
CEO Charles Grimsdale, OD2 is the leading European platform for the
distribution of online music and the only company with digital
music distribution rights for all major European countries from all
five major recorded music companies as well as Europe's largest
independent recorded music companies. OD2 provides a
"white-labeled" solution for over 35 online retailers, portals,
ISPs, telcos and other consumer brands, and powers digital music
stores in 12 countries. Through its various distribution partners
OD2 has built a database of more than 750,000 registered customers.
OD2 employs approximately 80 people and is headquartered in
Bristol, United Kingdom, with offices in London, Paris, Cologne,
Milan and Amsterdam. OD2 has received expansion capital from
leading UK venture capital firm Quester Capital Management Ltd, and
Japanese fund NIF Ventures. OD2 has experienced significant growth
in its business over the last year. For the quarter ended March 31,
2004 on a UK GAAP basis OD2 generated approximately $2.5 million in
revenues, which represented over 80% sequential growth from the
quarter ended December 31, 2003 and over 250% growth versus the
prior year quarter. "I co-founded OD2 with Charles Grimsdale as I
thought there were many exciting opportunities for digitally
distributed music," said Peter Gabriel, musician and co-founder of
OD2. "As a musician, I believe strongly that all artists should
have access to this powerful new means of getting music to people.
I'm delighted with OD2's extraordinary achievements. It has created
the most successful European platform for the distribution of music
from independents and majors alike. By combining with Loudeye, we
create the world's largest licensed catalogue of music available
for digital distribution. I believe this combination can deliver
the best digital music service for both consumers and labels that
is also committed to being fair to artists." Updated Financial
Guidance As a result of the acquisition, Loudeye expects
significant quarter-over- quarter revenue and gross profit growth
for the remainder of 2004. Loudeye expects to incur increased
expenses from integration costs, non-cash amortization charges
required in connection with the transaction, and forecasted OD2
operating losses for the remainder of 2004. Due to the timing of
the close of the acquisition, Loudeye's results for the second
quarter ending June 30, 2004 will not materially reflect the
effects of the transaction listed above. Loudeye will provide
additional information regarding a combined financial outlook as
part of its second quarter earnings conference call and webcast to
be scheduled in July 2004. Investor Conference Call Members of
Loudeye and OD2 management will conduct an audio webcast to discuss
this announcement. Investors are invited to listen in on this
webcast. Management will also provide a slide presentation to
accompany its statements, available in conjunction with the audio
webcast. Information regarding the investor webcast and slide
presentation is as follows: Date: Tuesday, June 22, 2004 Time: 9:00
a.m. EDT / 6:00 a.m. PDT Audio Webcast: 9:00 a.m. EDT / 6:00 a.m.
PDT; live and archived The webcast is available at
http://www.loudeye.com/. Disclosure of OD2 Financial Information
All OD2 financial information is based on UK GAAP and does not
reflect any adjustments required for US GAAP presentation. The
statement regarding combined pro forma revenues in this release has
been calculated by adding results from the three months ending
March 31, 2004, taken from Loudeye's filings with the Securities
Exchange Commission for the March 2004 quarter and OD2's audited
financial statements for the fiscal year ended March 31, 2004.
Because the companies prepare these results using different GAAP
requirements in the U.S. and U.K., the measurement methods
described above may result in amounts that differ from amounts
resulting from other methodologies the companies may use in the
future. About Loudeye Corp. Loudeye is the worldwide leader in
business-to-business digital media solutions and the outsourcing
provider of choice for companies looking to maximize the return on
their digital media investment. Loudeye combines innovative
products and services with the world's largest music archive and
the industry's leading digital media infrastructure enabling
partners to rapidly and cost effectively launch complete,
customized digital media stores and services. For more information,
visit http://www.loudeye.com/. Forward Looking Statements This
release contains forward-looking information within the meaning of
the Private Securities Litigation Reform Act of 1995, including
statements forecasting the attainment of expanded market position
in connection with its acquisition of OD2, the projected growth in
market share and user base, as well as the imminent mainstream
adoption of digital music across distribution channels worldwide
and statements by Loudeye's president and CEO and OD2's chief
executive officer. These statements are based on current
expectations and actual results may materially differ due to risks,
including unexpected difficulties or costs associated with the
integration of the acquisition, including OD2's technology,
customers, and certain personnel into Loudeye's existing technology
infrastructure, operations and business; diversion of management
time related to the acquisition integration; Loudeye's ability to
retain OD2's customers and key management and technical personnel;
delays in the adoption of digital music among Loudeye's
distribution partners; effectiveness of OD2's solution in launching
complete, private labeled music stores; the ability to develop
OD2's solution to integrate with any future DRM, devices and media
formats as they are developed; and other risks set forth in our
most recent Form 10-Q, Form 10-K and other SEC filings which are
available through EDGAR at http://www.sec.gov/. We assume no
obligation to update the forward-looking statements. DATASOURCE:
Loudeye Corp. CONTACT: media/public relations: Karen DeMarco of
mPRm, +1-323-933-3399, or , for Loudeye Corp.; or investors:
Michael Dougherty of Loudeye Corp., +1-206-832-4000, or Web site:
http://www.loudeye.com/
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