For Immediate Release
CDNOW TO MERGE WITH SONY'S AND TIME WARNER'S COLUMBIA HOUSE
TO CREATE WORLD'S LEADING MUSIC AND VIDEO E-COMMERCE COMPANY
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
FORT WASHINGTON, PA and NEW YORK, NY, July 13, 1999--CDNOW, Inc. (NASDAQ: CDNW),
a leader in music and video commerce, content and community, has entered into a
definitive agreement with Sony Corporation of America and Time Warner Inc. to
merge with Columbia House, the leading club-based direct marketer of music and
videos, which is owned equally by Sony Corporation (NYSE: SNE) and Time Warner
Inc. (NYSE: TWX), 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 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 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
CDNOW TO MERGE WITH SONY'S AND TIME WARNER'S COLUMBIA HOUSE, PAGE 2--
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, 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 of music, it also gives us an important
platform for offering consumers the opportunity to order or download music
instantly."
Nobuyuki Idei, 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 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 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.
CDNOW TO MERGE WITH SONY'S AND TIME WARNER'S COLUMBIA HOUSE, PAGE 3--
Howard Stringer, 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
CDNOW TO MERGE WITH SONY'S AND TIME WARNER'S COLUMBIA HOUSE, PAGE 4--
clearance by U.S. and Canadian antitrust 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 of intangible
assets (EBITDA) 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 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, MTV/VH1 and CMJ New Music Monthly. CDNOW's network of strategic
partners includes America Online, Yahoo!, Lycos/Tripod, Netscape, Excite,
WebCrawler, MTV/VH1, RollingStone.com, and CBS Cable's TNN, CMT and country.com.
CDNOW TO MERGE WITH SONY'S AND TIME WARNER'S COLUMBIA HOUSE, PAGE 5--
Sony Corporation of America (http://www.world.sony.com/SCA/index.html), based in
New York City, 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 This press release includes
certain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act 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 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 any such obligation to) update or
alter their forward-looking statements whether as a result of new information,
future events or otherwise.
####
Contacts:
CDNOW, Inc. Sony Corporation of America Sony Music Entertainment
Marlo Zoda Ann Morfogen Patricia Kiel
215-619-9432 212-833-6873 212-833-4647
Time Warner Inc. Warner Music Group
Edward Adler Jim Noonan
212-484-6630 818-954-5489
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) Source: MediaMetrix.
(b) As of June 1999.
(c) As of May 1999.