CDnow Teams Up with Sony, Time Warner

Internet music retailer CDnow has formed a partnership with Sony Corporation and Time Warner to build a music and video retailing behemoth. The July 13 announcement came in the wake of online bookseller's recent move into the music market. With the backing of corporate giants Sony and Time Warner, CDnow could be able to mount a challenge to the growing presence of Amazon, which is also expanding into toy sales and consumer electronics.

Some skeptical observers have noted the possibility that Amazon could diversify to the point of losing its focus. "They are going off in many, many directions," said Time Warner's CEO, Gerald Levin. Under the consolidation plan, Columbia House, the mail-order discount music club co-owned by Sony and Time Warner, will be merged with five-year-old CDnow.

The three-way deal is the latest in a series of moves into the Internet by major companies. Columbia House signed a marketing deal in February with America Online, the world's largest Internet Service Provider. Music-industry giant BMG recently teamed up with Universal Music to sell discs online at their GetMusic site.

CDnow will gain enormous financial and marketing resources in return for sacrificing its independence. The new retailing enterprise, which has not yet been given a name, will be owned 26% by CDnow's current shareholders, 37% by Sony, and 37% by Time Warner. The deal is expected to be finalized by the end of the year.