The digital music industry went into “shuffle” mode again on Wednesday, when Metro, the German retailer, said its Media-Saturn unit had acquired a controlling stake in 24-7 Entertainment, a UK-based distributor of digital music. Digital music, like social networking sites and internet operations, are being subsumed into more traditional businesses.
24-7 is a rival to Apple’s iTunes, and runs 41 download stores in 13 countries, including running the music stores for mobile operators like TDC of Denmark and supporting Sony Ericsson’s PlayNow service.
The size of the deal was not disclosed, but Loudeye, a rival of 24-7 was bought by Nokia for $60m in 2006. Valuations may have come down since then, but 24-7, which managed 93m downloads last year, did reach profitability in the third quarter of 2008.
It makes sense for Media-Saturn and 24-7 to combine forces in the face of a downturn. The move will help Metro expand beyond consumer electronics retailing into more aspects of e-commerce. Clearly, sales of gadgets are not going to be buoyant, and it is good to add other strings to their bow.
On the other hand, the digital music business is extremely challenging too. There is increasing pressure for services to make real money. Spiral Frog, an ad-supported free music sites, shut down operations last week, following in the footsteps of Ruckus earlier this year. Most digital music continues to be downloaded illegally, and there is serious competition from companies like Apple and Nokia on mobile phone music. It is time to turn up the volume or fade away. Having an owner like Metro, with relatively deep pockets will be no bad thing if 24-7 wants to expand aggressively to keep pace.
“Growing a company organically to become a world leader in digital distribution of entertainment products is certainly challenging,” said Frank Taubert, chief executive and co-founder of 24-7.
“Being part of an organisation that is represented in so many countries and has access to substantial funds will be of great help when rolling out our service on a pan-European level.”
