Peter Kafka

Recent Posts by Peter Kafka

Done Deal: MySpace Buys Imeem for Up to $10 Million

dark-knight-burningIt’s official: MySpace has closed on its acquisition of Imeem, the streaming music service. It is paying a fire-sale price of $1 million, sources familiar with the situation tell me, and could pay up to $7 million to $9 million in earn-outs for key employees, who will likely include CEO Dalton Caldwell.

For the record, the deal theoretically values Imeem at something like $8 million, but most of that comes in the form of accounts receivable and debt obligations, and isn’t relevant to MySpace, which won’t be dealing with that stuff. And it’s not relevant to investors like Sequoia and Warner Music Group (WMG), which pumped at least $25 million into the venture.

In retrospect, Warner’s move to write off all of its Imeem investment in May was 100 percent accurate.

In September, I visited Caldwell in his San Francisco office. He looked like a guy who has had a very hard year, but he was confident that the company had gotten through the worst of it. If Imeem executed on plan, he argued, it would be able to survive. It wouldn’t be a home run, but it could at least sustain itself–no mean feat for a digital music start-up.

So what happened? “Things can change very quickly,” a person familiar with the company’s story told me yesterday. The short version of the story is that Imeem quickly and unexpectedly ran out of cash. Here’s the longer version of that story, which I’ve pieced together from various sources:

  • As Om Malik reported, the company was hit with a copyright lawsuit by music publisher Orchard Enterprises (ORCD). Fighting the suit or settling it would require significant resources.
  • Efforts to raise another funding round fell flat. If you want, you can blame the fact that Sequoia declined to pour more money into the company, which acted as a blinking red warning light for other potential investors. Or you could point to the fact that Web music start-ups of all stripes have been flailing for a couple of years.
  • Ad sales, which had been perking up throughout the year, fell short of Q4 targets.
  • All of the above meant that Imeem was struggling to meet payroll and payments on its debt, which it racked up when it built out its own content-delivery network.

So in retrospect, it’s easy to see why the company sold: It had no choice. And it’s sort of easy to see why News Corp.’s (NWS) MySpace bought Imeem: It’s hard to pay less for talent.

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— Gitesh Pandya of comments on the dreadful opening weekend box office numbers for “The Fifth Estate.”