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Global digital music distributor MusicNet has been sold by its music industry owners to a venture capital firm.

Terms of the deal were not disclosed, but since MusicNet was privately held, that's no great surprise. The new owner is Baker Capital, a New York-based private equity firm founded in 1995. The firm specialises in "digital communications companies" and has a portfolio worth $1.5bn. It apparently chose MusicNet after evaluating a number of digital music companies, it said, though it didn't name names.

For MusicNet, which will continue to operate as an independent company, the deal gives it access to financial resources it could not expect its former owners to provide. The takeover will give it the funding it needs to expand, to license more content and take that content to more big-name retail partners, it said.

MusicNet was founded in 1999 by EMI, AOL, BMG and RealNetworks, but not formally launched until 2001. It later won the backing of Sony Music - now Sony BMG - and Time Warner 'acquired' AOL's stake in MusicNet when the two companies merged. RealNetworks later dropped MusicNet for Listen.com, which it acquired in 2003, though it retained its stake in the distributor.

Since then the digital music landscape has changed considerably, and the majors have largely lost their desire to control the distribution of digital music to retailers. They've found themselves working with a range of distribution partners and firms who combine distribution and retail into a single operation, like Apple's iTunes Music Store and Napster. Either way, the labels now seem to prefer not to compete with companies like these, and that may well be what encouraged them to sell to Baker.

Baker's goal is to push MusicNet to the forefront of the digital music business, it said, to make it the "dominant player". MusicNet's retail deals with AOL, Virgin Digital, Trans World Entertainment and others, has netted it over 500,000 subscribers around the world - more than Napster. It also maintains it has a larger selection of music than Napster, iTunes or anyone else: more than 1.3m tracks, to be precise.

That, it hopes, will allow it to win more business from retailers who want to sell digital music downloads but don't want to become mired in content licensing. One such is UK music retailer HMV, which this week said it had selected MusicNet for its second-generation download service in place of its current partner Loudeye/OD2.

The pure-play distributor's dilemma is that its business is at the mercy of the retailers' ability and/or willingness to promo their own services. That's certainly been an issue in the past, but as iTunes and Napster have driven public awareness of digital music, that's having a knock-on effect on other retailers. Hence HMV's willingness to spend £10m on its second-generation download service. And with greater awareness comes greater spending, so Baker may feel MusicNet can generate solid returns even if the public have never heard of it. ®

Related stories

HMV swaps digital music partners
Institutions pour $25.2m into digital music firm
HMV to spend £10m to catch up with Napster, Apple
MusicNet to deliver music downloads to UK
Virgin to open music download service
RealNetworks drops MusicNet for Listen.com
AOL intros US-only music service
EMI, BMG, AOL define universal Net music scheme

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