CDNOW, Inc. (NASDAQ: CDNW), a leader in music and video commerce,
content and community, has entered into a definitive agreement with
Sony Corporation of America and Time Warner Inc. to merge with
Columbia House, the leading club-based direct marketer of music and
videos, which is owned equally by Sony Corporation (NYSE: SNE) and
Time Warner Inc. (NYSE: TWX), it was announced today. The new
public company resulting from the merger will be owned 37 percent
each by Sony and Time Warner. CDNOW's existing stockholders will own
the remaining 26 percent.
Backed by two of the world's largest media companies, the merger
will create a major entertainment, e-commerce and direct marketing
company by bringing together a leading music web destination and the
largest music and video club in the U.S. and Canada. Sony and Time
Warner will make the new company an integral part of their overall
e-commerce activities. CDNOW shareholders will benefit from the new
company's ability to leverage the cross-promotional strengths and
full resources of Sony and Time Warner to lower its customer
acquisition costs and boost its customer base, providing an
e-commerce model with a sound economic basis.
Commenting on the agreement, Jonathan Diamond, chairman of the
board
of CDNOW, and Jason Olim, president and CEO of CDNOW, said: "Today
CDNOW takes its place among the world's great music brands. With
the combined resources of Time Warner, Sony, Columbia House and
CDNOW, our new company will be a leader in music, commerce, content
and community. This merger will dramatically accelerate our growth
and fulfill our vision of leading the digital revolution in the
music industry. We are excited to tap the 16 million music- and
video-buying customers of Columbia House, to expand our brand
development through advertising and integration on Sony and Time
Warner's entertainment, media and communications properties, and to
develop a close, mutually supportive relationship with Sony and Time
Warner's music divisions. CDNOW began the digital music revolution
in 1994 and will continue as its leader in the new millennium."
Gerald M. Levin, chairman and CEO of Time Warner, said: "Through
this alliance, we are creating an exciting new enterprise that will
be the centerpiece of our strong and growing presence in music and
video e-commerce. With the commercial arrival of the digital
downloading of music, it also gives us an important platform for
offering consumers the opportunity to order or download music
instantly."
Nobuyuki Idei, president and CEO of Sony Corporation, said: "This
innovative, multi-partied transaction is an important corporate
initiative for Sony that advances our strategy to create new
business platforms, and reflects our determination to become a
leader in entertainment-based new media. By joining the powerful
and complementary capabilities of Columbia House and CDNOW, we are
creating a strong foundation to capitalize on future e-commerce
growth opportunities."
Subject to the terms of the relevant agreements, Sony and Time
Warner have made significant strategic commitments to the new
company. The two companies' music-controlled web sites will be
linked to the new company's online retail web sites, enabling music
fans to sample content relating to their favorite artists and genres
and then make a purchase with the click of a mouse. Sony and Time
Warner will provide the new company with opportunities to purchase a
broad array of advertising from the two companies' vast media
properties. The considerable content-related resources of Sony and
Time Warner will help enrich the entertainment content of the new
company's e-commerce sites to create an exciting and entertaining
environment for consumers. Sony and Time Warner have also agreed to
provide certain financing guarantees to afford the merged company
financial flexibility to address its future capital needs and growth
plans.
Columbia House will continue to operate as a "club membership"
company offering primarily music and video products, subject to the
normal club restrictions. CDNOW will continue as an online retailer
that purchases its inventory from distributors and/or directly from
music companies. These two companies will combine their
complementary strengths to their mutual benefit. Columbia House
currently sells in excess of 15,000 music titles, while CDNOW sells
in excess of 500,000 titles.
Howard Stringer, chairman and CEO of Sony Corporation of America,
said: "This is a compelling combination that brings together
CDNOW's leadership position in online music retailing with Columbia
House's 16 million-member base, including a rapidly growing Internet
core of nearly two million members. It will create a unique,
publicly traded entity with two strong brands, broad distribution
channels, powerful customer linkage, and a seasoned group of
executives. We intend to build further on this platform and create
new technology-based distribution approaches that will supplement
and leverage many of our business entities."
Richard J. Bressler, chairman and CEO of Time Warner Digital Media,
said: "This exciting deal will enable us to drive down customer
acquisition costs by using Columbia House's 16 million active club
members to support the growth of the new company and by capitalizing
on the tremendous cross-promotional opportunities offered by the
collective entertainment assets of Time Warner and Sony. These
include record labels, movie and television production and
distribution companies, cable and broadcast networks, and magazine
and book publishers."
Richard C. Wolter, chairman and CEO of Columbia House, said: "With
this year's online sales projected at approximately $100 million and
nearly two million current online members, Columbia House has
established itself as a significant Internet player. This merger
will accelerate and enhance both Columbia House's and CDNOW's online
activities, provide rich cross-promotional opportunities, and enable
us both to quickly expand and realize the full promise of
interactive media. I'm excited about working with the entire CDNOW
team to mine the enormous potential of the merger and to provide our
valued members with greater choice and an enhanced online
experience."
The new company will have a 12-member board of directors, composed
of four designees each from Sony and Time Warner, CDNOW's President
and CEO Jason Olim, two independent directors, and the CEO of the
new company.
An aggressive search is currently underway for the CEO of the new
company. Jason Olim will serve as CEO of the new company's
Online/Retail division and Richard C. Wolter, chairman and CEO of
Columbia House, will continue to head the club operations of the new
company as CEO. After a transition period, Jonathan Diamond will
leave the new company to pursue other opportunities in the Internet
world.
The board of directors of CDNOW has unanimously approved the
merger.
The merger agreement is subject to CDNOW's shareholder approval and
customary conditions, including clearance by U.S. and Canadian
antitrust authorities. The parties anticipate completion of the
transaction by year end.
In connection with the merger agreement, Sony and Time Warner have
entered into agreements with certain shareholders of CDNOW,
including its President, CEO and Co-Founder, Jason Olim, Co-Founder
Matthew Olim and Chairman Jonathan Diamond, who collectively control
approximately 25 percent of the outstanding shares of common stock
of CDNOW. These agreements provide, among other things, that these
shareholders will vote their shares for the merger.
In 1998 Columbia House had net revenues of approximately $1.4
billion and earnings before interest, taxes, depreciation and
amortization of intangible assets (EBITDA) of approximately $100
million. Last year, Columbia House directly distributed
approximately 200 million music and video units to its membership
base from its existing fulfillment operations. Columbia House has
experienced rapid growth in its online music and video clubs
(columbiahouse.com). Columbia House's online revenues have also
grown rapidly, and are projected to total approximately $100 million
this year.
CDNOW, which currently serves an online music community of 2.3
million customers, was formed by the merger of CDNOW Inc. and N2K
Inc. in March of 1999. CDNOW had revenues of $98.5 million in 1998
and estimated revenues of approximately $71 million during the first
six months of 1999, both stated on a pro forma basis combined with
the results of N2K for the periods prior to the merger.
CDNOW, Sony and Time Warner expect to prepare and file a proxy
statement/prospectus with respect to the CDNOW shareholders meeting
to approve the merger and the registration of the new company's
common stock to be issued in the merger. The offering of the shares
to be issued pursuant to the merger will be made only by means of a
prospectus.
CDNOW helps people to enrich their lives by providing a digital
connection to music. CDNOW (cdnow.com) offers approximately 500,000
music-related items - ten times the size of the typical megastore -
intelligent album recommendations, custom CDs and music samples.
CDNOW offers a vast library of reviews and features from its own top
music writers in addition to editorial content from Rolling Stone,
MTV/VH1 and CMJ New Music Monthly. CDNOW's network of strategic
partners includes America Online, Yahoo!, Lycos/Tripod, Netscape,
Excite, WebCrawler, MTV/VH1, RollingStone.com, and CBS Cable's TNN,
CMT and country.com.
Sony Corporation of America (http://www.world.sony.com/SCA
/index.html), based in New York City, is the U.S. subsidiary of Sony
Corporation (http://www.world.sony.com), headquartered in Tokyo.
Sony Corporation is a leading manufacturer of audio, video,
communications and information technology products for the consumer
and professional markets. Its music, motion pictures, and computer
entertainment operations make Sony one of the most comprehensive
entertainment companies in the world. Sony recorded consolidated
annual sales of over $56 billion in the last fiscal year ended March
31, 1999.
Time Warner Inc. (NYSE: TWX, www.timewarner.com), the world's
leading media company, consists of four businesses: cable networks,
publishing, entertainment and cable.
Caution Concerning Forward-Looking Statements
This press release includes certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are based on management's current
expectations and are naturally subject to uncertainty and changes in
circumstances. Actual results may vary materially from the
expectations contained herein due to changes in economic, business,
competitive and/or regulatory factors, as well as the difficulty of
integrating the organizations, operations and personnel of CDNOW and
Columbia House, the potential for impairment of relationships with
employees or customers and the uncertainty inherent in the execution
of a new business plan for the combined company. More detailed
cautionary information is set forth in the most recent quarterly
report and other filings with the Securities and Exchange Commission
made by the companies named herein. None of the companies named
herein are under any obligation to (and expressly disclaim any such
obligation to) update or alter their forward-looking statements
whether as a result of new information, future events or otherwise.
Selected Financial and Operating Highlights
(Unaudited; $ in millions)
(Financial highlights are for fiscal year 1998) Columbia House CDNOW
Pro Forma Revenues $1,425 $98.5
Pro Forma EBITDA $99 $(105.4) Pro Forma Net Debt - as of 3/31/99 $300
$3 Shares O/S - as of 3/31/99 N/A 30 million
Active Members/Customers - Off-line 14.6 million(c) N/A - Online 1.9
million(c) 2.3 million (b)
Reach % - May 1999(a) 3.8% 6.0% Unique visitors - May 1999(a) 2.3
million 3.7 million Avg. time spent - May 1999(a) 12.5 minutes 13.1
minutes
Online Activities Time Warner Sony Reach % - May 1999(a) 21.2% 7.1%
Unique visitors - May 1999(a) 13.1 million 4.4 million Avg. time spent
per month
- May 1999(a) 19.0 minutes 17.3 minutes (a) As of June 1999. (b)
Source: MediaMetrix. (c) As of May 1999.
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