CDnow-Columbia House Deal Creates Marketing Opportunities

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The proposed merger between online music retailer CDnow Inc., Jenkintown, PA, and music-and-video club Columbia House Co., New York, will create a 4-million-customer database of online shoppers and back CDnow with the marketing muscle of Columbia House parents Sony Corp. and Time Warner Inc.

Plans announced yesterday call for the creation of a new, publicly traded company that would be 37-percent owned each by Sony Corp. and Time Warner Inc., with the remaining 26 percent owned by existing shareholders of CDnow Inc. The new company would operate a Web site where customers can listen to music samples and order compact discs, music videos and T-shirts.

The merger would greatly accelerate Columbia House's online efforts and give it the ability to steer its 16 million club members to the CDnow site.

"Obviously there are going to be links between the sites, whether or not that grows to be some kind of portal is something that is being looked at," said Richard C. Wolter, chairman and CEO of Columbia House, which would continue to operate its own Web site providing service to its members and would also continue to offer its offline membership clubs.

In addition to the cross marketing opportunities that the merger would provide, Wolter also said he expected that the two companies would be able to leverage each others' technological expertise.

He said its was too early to determine exactly how the new company would take advantage of those marketing opportunities.

"We're direct marketers and we're going to test and test and test, and find out what works," he said. "And once we find out, we're going to test and test and test again to beat it, until we find out the most efficient way."

The deal, which is subject to shareholder approval, is expected to close by year-end.

Jason Olim, the president and CEO of CDnow, will become CEO of the new company's online retail division, and Wolter will be CEO of the membership-club operation. A search is under way for the CEO of the combined company.

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