"new' Cdnow Emerges

LOS ANGELES‹Competition among Internet music retailers is heating up, following the finalization of the merger between leading music retailers CDnow and N2K.
The two companies formally combined March 17 to become CDnow (BillboardBulletin, March 17). The New York-based music retailer will be headed by CDnow president/CEO Jason Olim, who will expand CDnow's online music offerings to include DVD Video, full-length digitally downloadable albums, and portable digital music devices.
CDnow's expanded retail selection comes as competing online retailer Amazon.com prepares to expand its offerings to include digitally distributed music (BillboardBulletin, March 18).
N2K CEO Jon Diamond has been named chairman of CDnow's board of directors, while CDnow CFO Joel Sussman remains in that position. Musicland director of marketing Tracie Reed joins CDnow as VP of merchandising. N2K chairman Larry Rosen and vice chairman Dave Grusin remain on the board.
CDnow will keep major operations in Fort Washington, Pa., but about 20% of the N2K and CDnow work force has been reduced as a result of the merger, including N2K CFO Bruce Johnson. Many of the layoffs came from staff cuts at the N2K label last August.
"A number of redundant positions were reduced, but we do plan to hire new positions where appropriate," says Olim.
Olim expects the CDnow staff to consist of about 450 people by the end of the year.
N2K's retail site Music Boulevard will cease to exist May 17, as will N2K's genre-specific Web sites Rocktropolis, Jazz Central Station, and Classical Insites. Select editorial features and content from those sites will be integrated into the new CDnow site, which bows May 18. The music news site Allstar will continue to operate as both an independent and integrated site, according to Olim.
There are no expected changes in pricing strategy for sales of online music, according to Olim.
However, CDnow plans to rapidly expand the number of titles it sells beyond its current offering of 500,000 music titles, says Olim.
CDnow will continue to use Woodland, Calif.-based one-stop Valley Media for its fulfillment but is planning to begin using other competing one-stops in the coming weeks, according to Olim.
"We are developing software that will allow us to give a customer an order from the best warehouse, based on price, availability, and proximity to the consumer," he says.
In an effort to further expand its global reach, CDnow will enhance its product selection to include more titles from Japan and the U.K., according to Olim. The site will soon be available in seven languages and will begin to accept seven currencies.
CDnow recently expanded its online offerings to include DVD and will soon add portable music devices, such as Diamond Multimedia's Rio, according to Olim.
In addition, Olim says, the company will soon begin selling complete albums for digital download using a yet-to-be-determined secure technology.
CDnow is licensing full-length product for digital distribution from several leading independent labels, according to Olim. Major-label offerings are not expected to be among the first batch of digital albums, but Olim hopes they will soon be.
"The record labels are ready to jump in this space," says Olim. "If anything, I think that the industry pundits have underestimated the potential of this market."
CDnow's announced move into the digital-distribution commerce space will compete with existing digital- distribution efforts by a number of emerging Web retailers. However, a bigger challenge may come from E-commerce giant Amazon.com, which will formally announce its own digital-distribution plans shortly, according to Amazon.com music GM Jennifer Cast.
"Our goal is to give customers what they want, so we will most definitely sell digitally," says Cast. "There are a lot of interesting things to do in this space, but there just isn't a lot of major-label content there yet. We will partner with labels when they are ready."
CDnow's decision to keep the CDnow brand name follows a three-month research effort in which the company considered "thousands of names," Olim says.
Building the CDnow brand has been a costly task for the retailer. The company has entered into expensive marketing alliances with established music and Internet brands, including America Online, Yahoo!, CBS Cable, and MTV Networks. Those relationships are still intact, but some of the deals may change, according to Olim.
"We may have overkill in some of these deals," he says. "We were fierce competitors and are probably guilty of bidding up the deals. We are working with our partners to make the deals more successful for both of us."
Some industry insiders say that the CDnow/N2K merger was essential if both companies were to survive in the ever-growing competitive Web music space, which has been charged by the aggressive entry from Amazon.com.
"CDnow does have a technology edge over the book folks at Amazon.com, which may have its plate full as it tries to sell everything," says Mark Hardie, a senior analyst at consulting firm Forrester Research.
"A real battle is being staged from the traditional retailers, who will be more aggressive in jumping into the mix," he adds. "They have the strong brands, but some of them have been notoriously slow so far in this space."