Apple has acquired struggling (sinking?) online music streaming site Lala. Lala recently partnered with Google and Facebook, but according to Brad Stone of the NY Times, those deals apparently didn’t generate enough revenue to save the company, so it reached out to Apple:

“One person with knowledge of the deal, but who was not authorized to discuss it, said that the negotiations originated when Lala executives concluded that their prospects for turning a profit in the short term were dim and initiated discussions with Eddy Cue, Apple’s vice president in charge of iTunes.”

Apple jumped at the offer because it was a cheap way to get a head start on its own music streaming service:

“This person [see quote above] said Apple would primarily be buying Lala’s engineers, including its energetic co-founder Bill Nguyen, and their experience with cloud-based music services.”

Btw, Peter Kafka of MediaMemo says it was a fire sale:

“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, 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 #1, 4:00 pm – Kafka says the price was $80 million, so “some investors could get their money back and more.”

UPDATE #2, 12/8 – Michael Arrington of TechCrunch says the price was $17 million, and since Lala “supposedly had $14 million in cash in the bank, meaning the actual purchase price was really $3 million.”

TechCrunch wonders what effect the deal will have on Google’s music service and Facebook’s gift store, not to mention those people who actually paid money to stream music via Lala:

“This could be bad news for Lala users. It’s unlikely that the innovative deals negotiated by Lala will survive through the acquisition. For over a year, Lala users have been purchasing the rights to stream their music an unlimited number of times for ten cents per song. If the deals with the music labels go up in smoke, Lala may lose the right to stream those songs. In other words, all the money users have been spending on web songs may go down the drain. If the deals are nullified, hopefully Apple will renegotiate them to at least cover existing purchases until it releases its own streaming music service. We’ve reached out to Lala but have yet to hear back. Likewise, this may well affect the Lala music gifts that have been recently offered by Facebook, and it could also harm the Music OneBox service Google recently launched (though Google can still rely on MySpace/iLike for its song streams).”

Finally, Kafka points out that this is the third music deal in just about as many months. MySpace — desperately trying to reinvent themselves back into relevance — recently acquired iLike (late August) and Imeem (November).

UPDATE #3, 12/8 – TechCrunch says the Imeem deal has hit a snag, probably over who actually owns Imeem’s servers.

Submitted by: Dan Giancaterino, Education Services Manager
on December 07, 2009 - 10:28 am

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