Loudeye being sold to Nokia

Loudeye, a former digital-music darling that fell upon hard times, is being sold to cellphone giant Nokia for $60 million in cash.

The Seattle company was created in 1997 and valued at $1.4 billion after its superstar public offering in 2000. It had as many as 300 employees in 2001, and was making a name for itself by encoding audio and video files for distribution over the Internet.

Loudeye supplies retailers such as Microsoft's MSN unit with content and other services. But as years passed, potential retailer customers began developing their own systems or favoring Loudeye's competitors, and the value of the company fell. Loudeye never made a quarterly profit.

Loudeye has just a handful of employees in Seattle, with most of its business operations in Europe. The company has blown through a number of executives, and recently implemented a 1-for-10 reverse stock split after the Nasdaq stock market threatened delisting.

Loudeye stockholders will receive $4.50 per share in cash in the deal. In response to the news announced Tuesday, investors pushed Loudeye's stock price up 145 percent to close at $4.33.

In an internal memo to employees Tuesday, Loudeye said Nokia is planning to launch a Nokia-branded music service based on Loudeye's platform and services. Nokia sold more than 45 million music-enabled cellphones last year, the memo said, and wants to create services to complement those devices.

Loudeye said in the memo that while Nokia's plan is to retain its staff and grow the business, there is no guarantee that layoffs will not take place. Loudeye employees will continue to work from existing offices in England, Germany, Rome and France.

The Seattle employees — mostly executives — could be redeployed within Nokia or receive severance packages, the memo said. Nokia may also decide to use Seattle as a base for expanding its services into the United States. While Nokia is the No. 2 handset maker in the U.S., it doesn't sell many services directly to customers here. Executives from Loudeye and Nokia did not respond to requests for comment Tuesday.

Nokia has worked with Loudeye since August 2004, and is buying mainly Loudeye's European operations. In May, Loudeye sold its U.S.-based business for $11 million to entertainment directory provider Muze, and said at the time it would focus its efforts on Europe.

Loudeye gained entry to the European market in 2004 by acquiring On Demand Distribution (OD2), a U.K.-based online music distributor cofounded by musician Peter Gabriel, for nearly $40 million.

In an earlier interview with The Seattle Times, Loudeye chief executive Michael Brochu said the company had intended to meld OD2's operations with its U.S.-based business, but because the industry was moving so quickly it ended up developing both platforms on parallel tracks. Each platform had its own developers and code base, which made integration difficult.

Nokia is working hard to build its multimedia group, and the Loudeye acquisition might help it position itself to offer a mobile music service, said Charul Vyas, a senior wireless analyst with the Port Washington, N.Y.-based NPD Group. Still, she said, it's too early to tell how much success Nokia might have introducing a music service in the U.S.

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com

Key events in Loudeye's history

1997: Founded as Encoding.com by Martin Tobias; changes name to Loudeye Technologies in 1999.

March 2000: Valued at $1.39 billion after first day of trading.

November 2000: David Bullis replaces Tobias as chief executive.

March 2001: Bullis resigns, replaced as CEO by John Baker.

April 2001: Lays off 135; 165 employees left.

October 2001: Tobias resigns as chairman, sells 4 million shares back to company.

June 2002: Cuts 76 employees, trims pay for remaining workforce.

February 2003: Baker resigns, replaced as CEO by Philip Gioia.

March 2003: Gioia resigns, replaced as CEO by Jeff Cavins.

August 2003: Raises $12.2 million in equity financing.

February 2004: Raises $20 million by selling shares of stock.

February 2005: Cavins resigns, replaced as CEO by Michael Brochu.

May 2006: Sells U.S. operations to Muze for $11 million; implements 1-for-10 reverse stock split.

August 2006: Acquired by Nokia for $60 million in cash.

Source: Seattle Times archives