CDNOW To Merge With Sony's and Time Warner's Columbia House to Create World's Leading Music and Video E-commerce Company.FORT WASHINGTON Fort Washington, military post during the American Revolution, situated on the highest point of Manhattan island, New York City, overlooking the Hudson River opposite Fort Lee, N.J. , Pa. & NEW YORK--(BUSINESS WIRE)--July 13, 1999-- New Company to Mine More Than 16 Million Active Columbia House Music and Video Buyers New Company Expects to Have Initial Combined Online Customer Base of Approximately 4 Million New Company to be Premier Retailer of Packaged Music and an Integral Part of Sony's and Time Warner's E-Commerce Strategies CDNOW, Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : CDNW), a leader in music and video commerce, content and community, has entered into a definitive agreement with Sony Corporation of America Sony Corporation of America (SCA) is the United States subsidiary of Japan's Sony Corporation. It is based in Inglewood, California. It is the umbrella company under which all Sony companies operate in the United States. Subsidiaries
See: New York Stock Exchange : SNE SNe Supernovae (astronomy) SNE Sony Corporation (stock symbol) SNE Syndicat National de l'edition (French Publisher's Association) SNE Society for Nutrition Education ) and Time Warner Inc. (NYSE: TWX (TeletypeWriter eXchange Service) A U.S. and Canadian dial-up communications service that became part of Telex. In 1971, the Bell System sold TWX to Western Union. TWX transmitted 5-bit Murray code or 7-bit ASCII code at up to 150 bps. See Telex. ), it was announced today. The new public company resulting from the merger will be owned 37 percent each by Sony and Time Warner. CDNOW's existing stockholders will own the remaining 26 percent. Backed by two of the world's largest media companies, the merger will create a major entertainment, e-commerce and direct marketing company by bringing together a leading music web destination and the largest music and video club Music and Video Club or MVC was a British retailer which sold DVDs, VHS, audio cassettes, video games and CDs of popular and specialist titles. At its peak it had 82 stores in the United Kingdom and also sold products over the Internet. in the U.S. and Canada. Sony and Time Warner will make the new company an integral part of their overall e-commerce activities. CDNOW shareholders will benefit from the new company's ability to leverage the cross-promotional strengths and full resources of Sony and Time Warner to lower its customer acquisition costs and boost its customer base, providing an e-commerce model with a sound economic basis. Commenting on the agreement, Jonathan Diamond, chairman of the board of CDNOW, and Jason Olim, president and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of CDNOW, said: "Today CDNOW takes its place among the world's great music brands. With the combined resources of Time Warner, Sony, Columbia House and CDNOW, our new company will be a leader in music, commerce, content and community. This merger will dramatically accelerate our growth and fulfill our vision of leading the digital revolution in the music industry. We are excited to tap the 16 million music- and video-buying customers of Columbia House, to expand our brand development through advertising and integration on Sony and Time Warner's entertainment, media and communications properties, and to develop a close, mutually supportive relationship with Sony and Time Warner's music divisions. CDNOW began the digital music revolution in 1994 and will continue as its leader in the new millennium." Gerald M. Levin Gerald M. "Jerry" Levin (b. 6 May, 1939, Pennsylvania, USA) is an American businessman. He attended Haverford College, where he is a member of the Board of Directors. Levin spent most of his career with Time Inc. , chairman and CEO of Time Warner, said: "Through this alliance, we are creating an exciting new enterprise that will be the centerpiece of our strong and growing presence in music and video e-commerce. With the commercial arrival of the digital downloading  The perspective and/or examples in this article do not represent a world-wide view. Please [ edit] this page to improve its geographical balance. of music, it also gives us an important platform for
offering consumers the opportunity to order or download music
instantly."
Nobuyuki Idei Nobuyuki Idei (出井伸之, Idei Nobuyuki; born November 22, 1937) was the Chairman and Group Chief Executive Officer of Sony Corporation. He is also a director of General Motors and Nestlé. , president and CEO of Sony Corporation, said: "This innovative, multi-partied transaction is an important corporate initiative for Sony that advances our strategy to create new business platforms, and reflects our determination to become a leader in entertainment-based new media. By joining the powerful and complementary capabilities of Columbia House and CDNOW, we are creating a strong foundation to capitalize on Cap´i`tal`ize on` v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. future e-commerce growth opportunities." Subject to the terms of the relevant agreements, Sony and Time Warner have made significant strategic commitments to the new company. The two companies' music-controlled web sites will be linked to the new company's online retail web sites, enabling music fans to sample content relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc their favorite artists and genres and then make a purchase with the click of a mouse. Sony and Time Warner will provide the new company with opportunities to purchase a broad array of advertising from the two companies' vast media properties. The considerable content-related resources of Sony and Time Warner will help enrich the entertainment content of the new company's e-commerce sites to create an exciting and entertaining environment for consumers. Sony and Time Warner have also agreed to provide certain financing guarantees to afford the merged company financial flexibility to address its future capital needs and growth plans. Columbia House will continue to operate as a "club membership" company offering primarily music and video products, subject to the normal club restrictions. CDNOW will continue as an online retailer that purchases its inventory from distributors and/or directly from music companies. These two companies will combine their complementary strengths to their mutual benefit. Columbia House currently sells in excess of 15,000 music titles, while CDNOW sells in excess of 500,000 titles. Howard Stringer Sir Howard Stringer (born February 19, 1942) is a British businessman and Chairman and Chief Executive Officer of Sony Corporation. Previously he was chief executive of Sony Corporation of America before being promoted to the highest post. , chairman and CEO of Sony Corporation of America, said: "This is a compelling combination that brings together CDNOW's leadership position in online music retailing with Columbia House's 16 million-member base, including a rapidly growing Internet core of nearly two million members. It will create a unique, publicly traded entity with two strong brands, broad distribution channels, powerful customer linkage, and a seasoned group of executives. We intend to build further on this platform and create new technology-based distribution approaches that will supplement and leverage many of our business entities." Richard J. Bressler, chairman and CEO of Time Warner Digital Media, said: "This exciting deal will enable us to drive down customer acquisition costs by using Columbia House's 16 million active club members to support the growth of the new company and by capitalizing on the tremendous cross-promotional opportunities offered by the collective entertainment assets of Time Warner and Sony. These include record labels, movie and television production and distribution companies, cable and broadcast networks, and magazine and book publishers." Richard C. Wolter, chairman and CEO of Columbia House, said: "With this year's online sales projected at approximately $100 million and nearly two million current online members, Columbia House has established itself as a significant Internet player. This merger will accelerate and enhance both Columbia House's and CDNOW's online activities, provide rich cross-promotional opportunities, and enable us both to quickly expand and realize the full promise of interactive media. I'm excited about working with the entire CDNOW team to mine the enormous potential of the merger and to provide our valued members with greater choice and an enhanced online experience." The new company will have a 12-member board of directors, composed of four designees each from Sony and Time Warner, CDNOW's President and CEO Jason Olim, two independent directors, and the CEO of the new company. An aggressive search is currently underway for the CEO of the new company. Jason Olim will serve as CEO of the new company's Online/Retail division and Richard C. Wolter, chairman and CEO of Columbia House, will continue to head the club operations of the new company as CEO. After a transition period, Jonathan Diamond will leave the new company to pursue other opportunities in the Internet world. The board of directors of CDNOW has unanimously approved the merger. The merger agreement is subject to CDNOW's shareholder approval and customary conditions, including clearance by U.S. and Canadian antitrust Antitrust The antitrust laws apply to virtually all industries and to every level of business, including manufacturing, transportation, distribution, and marketing. They prohibit a variety of practices that restrain trade. authorities. The parties anticipate completion of the transaction by year end. In connection with the merger agreement, Sony and Time Warner have entered into agreements with certain shareholders of CDNOW, including its President, CEO and Co-Founder, Jason Olim, Co-Founder Matthew Olim and Chairman Jonathan Diamond, who collectively control approximately 25 percent of the outstanding shares of common stock of CDNOW. These agreements provide, among other things, that these shareholders will vote their shares for the merger. In 1998 Columbia House had net revenues of approximately $1.4 billion and earnings before interest, taxes, depreciation and amortization Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP metric that can be used to evaluate a company's profitability.
An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. (EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become ) of approximately $100 million. Last year, Columbia House directly distributed approximately 200 million music and video units to its membership base from its existing fulfillment operations. Columbia House has experienced rapid growth in its online music and video clubs (columbiahouse.com). Columbia House's online revenues have also grown rapidly, and are projected to total approximately $100 million this year. CDNOW, which currently serves an online music community of 2.3 million customers, was formed by the merger of CDNOW Inc. and N2K Inc. in March of 1999. CDNOW had revenues of $98.5 million in 1998 and estimated revenues of approximately $71 million during the first six months of 1999, both stated on a pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma basis combined with the results of N2K for the periods prior to the merger. CDNOW, Sony and Time Warner expect to prepare and file a proxy statement/prospectus with respect to the CDNOW shareholders meeting to approve the merger and the registration of the new company's common stock to be issued in the merger. The offering of the shares to be issued pursuant to the merger will be made only by means of a prospectus. CDNOW helps people to enrich their lives by providing a digital connection to music. CDNOW (cdnow.com) offers approximately 500,000 music-related items - ten times the size of the typical megastore - intelligent album recommendations, custom CDs and music samples. CDNOW offers a vast library of reviews and features from its own top music writers in addition to editorial content from Rolling Stone rolling stone Noun a restless or wandering person , MTV/VH1 and CMJ CMJ Chinese Medical Journal CMJ College Media Journal CMJ College Mathematics Journal CMJ Complete Metal Jacket CMJ Certified Measuring Judge CMJ Chief of Military Justice CMJ Critical Mass Journal New Music Monthly. CDNOW's network of strategic partners includes America Online See AOL. , Yahoo!, Lycos/Tripod, Netscape, Excite, WebCrawler, MTV/VH1, RollingStone.com, and CBS (Cell Broadcast Service) See cell broadcast. Cable's TNN TNN The National Network (formerly The Nashville Network) TNN The Nashville Network (now The National Network) TNN The Nerd Network (online gaming clan) , CMT CMT Certified Medical Transcriptionist. CMT abbr. Certified Medical Transcriptionist CMT California mastitis test. and country.com. Sony Corporation of America (http://www.world.sony.com/SCA /index.html), based in New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. , is the U.S. subsidiary of Sony Corporation (http://www.world.sony.com), headquartered in Tokyo. Sony Corporation is a leading manufacturer of audio, video, communications and information technology products for the consumer and professional markets. Its music, motion pictures, and computer entertainment operations make Sony one of the most comprehensive entertainment companies in the world. Sony recorded consolidated annual sales of over $56 billion in the last fiscal year ended March 31, 1999. Time Warner Inc. (NYSE: TWX, www.timewarner.com), the world's leading media company, consists of four businesses: cable networks, publishing, entertainment and cable. Caution Concerning Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. This press release includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. These statements are based on management's current expectations and are naturally subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained herein due to changes in economic, business, competitive and/or regulatory factors, as well as the difficulty of integrating the organizations, operations and personnel of CDNOW and Columbia House, the potential for impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. of relationships with employees or customers and the uncertainty inherent in the execution of a new business plan for the combined company. More detailed cautionary information is set forth in the most recent quarterly report and other filings with the Securities and Exchange Commission made by the companies named herein. None of the companies named herein are under any obligation to (and expressly disclaim dis·claim v. dis·claimed, dis·claim·ing, dis·claims v.tr. 1. To deny or renounce any claim to or connection with; disown. 2. To deny the validity of; repudiate. 3. any such obligation to) update or alter their forward-looking statements whether as a result of new information, future events or otherwise. -0-
Selected Financial and Operating Highlights
(Unaudited; $ in millions)
(Financial highlights are for
fiscal year 1998) Columbia
House CDNOW
Pro Forma Revenues $1,425 $98.5
Pro Forma EBITDA $99 $(105.4)
Pro Forma Net Debt - as of 3/31/99 $300 $3
Shares O/S - as of 3/31/99 N/A 30 million
Active Members/Customers
- Off-line 14.6 million(c) N/A
- Online 1.9 million(c) 2.3 million (b)
Reach % - May 1999(a) 3.8% 6.0%
Unique visitors - May 1999(a) 2.3 million 3.7 million
Avg. time spent - May 1999(a) 12.5 minutes 13.1 minutes
Online Activities Time Warner Sony
Reach % - May 1999(a) 21.2% 7.1%
Unique visitors - May 1999(a) 13.1 million 4.4 million
Avg. time spent per month
- May 1999(a) 19.0 minutes 17.3 minutes
(a) As of June 1999.
(b) Source: MediaMetrix.
(c) As of May 1999.
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