CDnow, the Web's leading music retailer, secured US$10 million in venture-capital funding Wednesday that will be used to expand its marketing reach. The site already claims some 1.5 million visitors each month.
The financing was coordinated by investment bank Alex Brown, which played a leading role in the recent initial public share offerings by online bookseller Amazon.com and cable-based Net-access provider @Home. Funding was provided by Grotech Capital Group and Keystone Venture Capital.
"With local music stores closing and consumers demonstrating more diverse musical tastes, CDnow is experiencing a real convergence of marketplace trends," said Thomas Hitchner, managing director of Alex Brown's Private Equity Group. "This placement was completed quickly, because CDnow is the leading online music retailer, and is now positioned with the resources to be a dominant long-term player."
According to Jupiter Communications, CDnow accounts for a third of all online music sales - more than twice that of its nearest competitor. The US market for online music purchases is expected to grow to $1.6 billion by 2002.
This potential for profit is why one of CDnow's rivals, N2K, filed last week to go public. The operator of online music store Music Boulevard hopes to raise about $43 million to repay debt and improve marketing, as well as to fund future alliances and acquisitions.
It's no accident that among online wares, music and books are enjoying especially strong sales. Buyers generally know what they want before they go shopping, and don't feel a need to kick the tires before handing over their cash.
CDnow was founded in 1994 by brothers Jason and Matthew Olim. The service now features more than 250,000 products, including CDs, tapes, movies, and books.
