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To: HG who wrote (46252)	3/18/1999 8:39:00 AM
From: Glenn D. Rudolph	Respond to of 164684

CDNow merges, says ready to rock and roll By Andrew Hay NEW YORK, March 17 (Reuters) - CDNow Inc.<CDNW.O> and N2K Inc. NTKI.O sealed their $522 million merger Wednesday and set about the task of persuading Wall Street they can make great music as they battle arch rival Amazon.com <AMZN.O>. The combined company, to be known as CDNow, is the largest online music seller and the third largest online retailer, based on revenues. Its most immediate goals are to show investors it can cut spending, turn a profit and make CDNow as synonymous with music as Barnes & Noble is with books. While other Internet stocks have shown unstoppable gains, CDNow and N2K have languished. Some investors question how CDNow will compete with leading online retailer Amazon.com and its 6.2 million customer base. They ask how a firm can survive as a specialty music seller while Internet companies like Amazon become virtual discount department stores. CDNow Chief Executive Jason Olim likens CDNow to a Tower Records or HMV while he compares Amazon to a WalMart or Kmart. He expects investors to come around to his conclusion. "We are somewhat of a sleeper," said Olim, 29, who created CDNow in 1994 in his parents' basement. "Investors don't understand our story today, I have faith they will understand it soon." Wall Street has linked CDNow's problems with Amazon.com's successes. Amazon was not even selling CDs until June 11. A household name, it took six months to outpace CDNow and become the No. 1 music seller on the Web. In contrast to CDNow, Amazon does not have to shovel out millions of dollars for shop space on high-rent Internet sites. The Seattle company sells most of its wares straight from its spot on the Web. The combined CDNow will have a bigger bargaining chip as it negotiates leases with Internet heavyweights like America Online Inc. <AOL.N>, Yahoo Inc. <YHOO.O> and Excite Inc. <XCIT.O>. With its new-found clout, CDNow can outmaneuver Amazon and every other online and bricks-and-mortar competitor, Chairman Jon Diamond said. At the same time it can be a better music store. "You have one company that will be the music brand on the Internet," said Diamond, N2K's chief executive and a saxophonist who toured with Kool & The Gang and the Four Tops. CDNow hopes to expand its product line, while sticking to core music-related products. It will launch a new site in May that combines the lush rock-and-roll look of N2K with CDNow's sparse, efficient image. Caging the Amazon brand is key to CDNow's success, said Kevin Wagner, an analyst with Adams Harkness. "This whole e-tailing game is all about brand names and how you contain the 600-pound gorilla that got into that space," Wagner said. "The Amazon issue is still a psychological issue on the stock." Olim said Amazon is nothing to be scared of. "People point to Amazon as the company that seems to be able to put anyone out of business, but they haven't put anyone out of business that I know of," he said. Shares of CDNow closed at $18.44, up 63 cents but down over 50 percent from a year high of $39.25 reached in April 1998.