Peter Kafka

Recent Posts by Peter Kafka

Confirmed: Apple Buys Music Service Lala, at a Fire Sale Price [UPDATE]

Note: Sources now tell me that Apple ended up paying much more than I had thought for LaLa — around $80 million. That means that some investors could indeed get a return on their investment, thought not all of them will. You can read a full update here, but I’m leaving the rest of this report as is for the time being.

Apple has purchased online music service Lala, I’ve confirmed with a source familiar with the transaction. Both Bloomberg and CNET reported the chats earlier today. If you’d like other confirmation, New York Times also reports that the deal has closed.

Lala’s investors will not get a return on the $35 million they’ve put into the company. Earlier this year, founder Bill Nguyen told me he was working on a deal to get the company more funding in an “up round”–that is, at a higher value than the previous round.

But Warner Music Group (WMG), which had previously invested $20 million in Lala, wrote down $11 million of that. And a source tells me that the Apple transaction reflected a similar discount, meaning that investors will be lucky to get 50 cents on the dollar on this one.

UPDATE: A second source close to the company insists my estimate is “way off” but won’t offer up other details.

What’s unclear is exactly what Apple has bought. Lala offers listeners a streaming music service with one free play and access to replays–not downloads–for 10 cents a track. But while the service recently got a boost via Google’s (GOOG) new music search offering, where it’s one of two featured partners, it doesn’t have a huge customer base to sell, which means Apple (AAPL) could be interested in acquiring its technology and/or team.

The deal is the third acquisition of an online music service in recent months. News Corp.’s (NWS) MySpace has already picked up iLike and Imeem at fire-sale prices.

I’ve put in requests for comment to both Apple and Lala.

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