Column from March 20th, 2000 issue

Did anyone notice? CD Now and CBS Sony (with Time Warner) have terminated their merger agreement that would have combined CD Now and Columbia House, just a couple of months after fan-faring their supposedly triumphant "brave new world" deal.....

Last July it was all about being the biggest music retailing company in the world and being at the forefront of the digital direct music distribution system. Now it all seems to be a bit of a backtrack. Instead of merging, Columbia House will commit $51 million to CD Now: $21 million would be earmarked for a direct equity stake while the rest would essentially be a loan. Hmmmn, that's barely even beer money for Wall Street suits who'll give anyone that can even spell "e-commerce" $100 million or more!!!

One thing is clear, CD Now (by virtue of its size) is a powerful force in the new music environment - it just doesn't seem to understand what to do with that power or, for that matter, understand how to make money. Investment bankers have already been called in by CD Now to "help the company explore ways to reduce its operating expenses and expand its business". Good policy, investment bankers have screwed up every major record label, so they might as well do the same for internet retailers! It's only fair!

But maybe, just maybe, people are beginning to see that the whole e-commerce buzz in the music industry is just a special form of hype to line third parties and intermediaries pockets, and set up a few executives for life. Look at CD Now's stock, just a year ago its shares fetched a hefty $39.25 each, today you pick them up for $8.25 a time - clearly not a good investment, clearly a bad past performance, yet brokers will still give them a strong buy recommendation. Why?

CD Now is quick to cry wolf by saying the Columbia House deal falling apart was not, perish the thought, its fault. As the company says: "It didn't make financial sense any more. The cash position and debt levels at Columbia House were not what we envisioned when we agreed to merge in July. It became clear to all of us that Columbia House was the wrong vehicle." But that's hardly the real rub is it? For a company who's stock is plummeting? The real reason seems to be that Columbia House thought was stealing CD Now's thunder. And, don't forget, Time Warner owns part of Columbia House so it'll have plans for a bigger and better Death Star, sorry I mean "Media Conglomerate", which it can stick together with AOL which it also controls via merger.

Well, someone is going to have to remember that it doesn't matter how fancy the box is, you've got to have something to go in it. Unless of course you're just out to stiff some investors who don't know any better....