Vivendi Universal ( V) and Sony ( SNE) are doing the online music business a huge favor -- by getting out of the online music business.
That, apparently, is the conclusion of investors Monday, after the two record labels announced they sold their Pressplay online music partnership to the CD-burning software company Roxio ( ROXI). By sending Roxio's shares up nearly 13% Monday -- in the opposite direction a company's stock usually goes after the announcement of a major purchase -- Wall Street effectively decided that a micro-cap money-loser with declining revenue is a lesser fool, as far as online music goes, than two of the five most powerful music companies in the world. Or perhaps it's just a supply-demand inequity for online music investment opportunities in general. Encouraged by Apple's ( AAPL) announcement of success with its new online music store, investors may simply see Roxio as a purebred horse on which it can make its online music bet -- a gelding carrying less baggage than, say, Apple's computer business or the record labels' ailing traditional business. Shares in Roxio, which peaked at $7.83 Monday, traded at $7.70 in the afternoon, up 80 cents. Clearly, Roxio CEO Chris Gorog thinks that his company -- which bought the assets of the late file-swapping pioneer Napster last fall -- will bring enthusiasm to the online music business that the major labels have lacked. The majors, says Gorog, are finally recognizing that online music is a legitimate retail channel, one to which they need to market. That hasn't always been true, says Gorog, even when the majors set up their online businesses in late 2001 -- Universal Music Group and Sony behind Pressplay, and Bertelsmann, AOL Time Warner ( AOL) and EMI backing the rival MusicNet. "I don't think that there was a universal acceptance across the board at the major labels," says Gorog. "The forays with Pressplay and MusicNet were experiments."