CDnow's total focus is online retailing. The company sells CD's at prices slightly cheaper than retail. Recent price war issues made some noise, as online music sales soared and regular music sales plummeted. Traditional music retailers such as Tower and Camelot have responded with Web sites of their own; Amazon.com, which sells books online, has just entered the music market. In 1998, CDNow and competitor N2K announced a merger of the two largest companies based around on-line music sales.CDnow was founded by Jason Olim in 1994 while he was studying computer science at Brown University. After his exhaustive and unsuccessful search for a Miles Davis CD (one clerk had not heard of the jazz musician), Olim launched the company out of his parents' basement in a suburb of Philadelphia, PA, assisted by his twin brother Matthew. Principal shareholders include investment firm Grotech Partners. The 1997 Cosmic Credit Program hooked up hyperlinks to the CDnow website from over 9000 sites of musical artists (mostly fan-operated). Later that year, $10 million poured in from private investors. In February 1998, CDnow went public, and later bought superSonic BOOM, which enables customers to create customized CDs. CDnow proudly announced the appointment of famed journalist Anthony DeCurtis as Executive Editor in May 1998.
Can't spell? CD now will help you find the CD of your choice with its special feature for the "spelling-challenged": Verity, Inc.'s K2 search technology. Even if you type in You Too, U2 will come up. CDnow recently agreed to a sponsorship deal with MTV Networks. In a $5.5 million agreement, Lycos Bertelsmann US named CD now the exclusive music retailer of CDs and related goods on Lycos and Tripod Web sites. CD now.com can be read in nine languages and is also exclusive in several European countries. Hey, how do you say CD in Italian?
Follow the yellow brick road...to failure
Selection and service aside, CDnow's days are numbered. In March 2000, after a failed merger with the Columbia House music club, Sony-Time Warner bailed the company out with what was, for all intents and purposes, a $51 million dollar loan. Cdnow has not shown that it can compete with Amazon.com which started selling CD's in 1998, let alone the countless brick-and-mortar retailers or the MP3 boom. Accounting firm Arthur Andersen announced in March 2000 that CDnow only had enough cash to make it to September 30. It is now a prime acquistion target - it even announced that a deal would be done by June 30, but that now seems premature. It looks like it's back to the basement drawing board for the Olim brothers.
Bertelsmann to the rescue
After spending two months searching for major investors or buyers, CDNow announced in July 2000 that German media group Bertelsmann AG would buy the online music seller for $117 million. CDNow would receive $42 million in financing to pay off loans and to fund operations until the transaction was finalized. For Bertelsmann, the acquisition meant it would have a recognizable and hip online music brand, and 3.7 million music cusomters in eight countries. Despite its problems, CDNow was the most popular online music retailer in May 2000.
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