Warner Music dropped a bundle on Lala deal

Stephen Withers
Thursday, 14 January 2010 11:19

IT Industry - Listed Tech

Warner Music did its dough when it invested in Lala. The company is millions of dollars out of pocket following Lala's acquisition by Apple.

Launched in mid 2007, Lala provided streaming and downloadable music. The business model was that licensing rights allowing one free listen to any of eight million tracks would be covered from revenue from unlimited streaming, MP3 downloads, or CD sales.

According to an SEC filing, Warner Music purchased a minority stake in Lala for $US20 million in 2007. The deal also involved warrants entitled the company to buy additional shares if it shipped more than 25 million CDs as a result of Lala promotional placements over a five year period.

But when Apple acquired Lala in December 2009 , Warner Music received just $US9 million for its stake in the company and the warrants expired.

At the time, estimates of the amount Apple paid for Lala varied between $US17 million and $80 million. $US17 million is clearly too low if Warner Music received $US9 million for less than 50% (supposedly significantly less) of the shares.

Warner Music has revealed it received approximately $US300,000 in fees relating to content agreements with Lala during its 2009 fiscal year. Viewed optimistically, this suggests Warner Music's total revenue from Lala could be as much as $US1 million.

So... $US20 million in, $US10 million out. Not a very good outcome.

Still Warner Music still has content agreements with Lala, and is presumably hoping the dollars will flow in greater numbers once Apple reveals what it is going to do with Lala.

Speculation about Apple's plans include allowing tracks in the iTunes Store to be played once in their entirety prior to purchase, or using Lala as the basis of a subscription music streaming service (something CEO Steve Jobs has repeatedly decried).

The latter could tie in with rumours that the supposedly forthcoming Apple tablet will be a media-centric device.