The biggest music company you’ve never heard of is looking to make a move.
In the wake of several industry mergers, New York-based music site eMusic.com is examining strategic alternatives for its business, considering a sale, recapitalization, or the addition of a streaming component to the download service, The Post has learned.
JDS Capital Management, the investment firm that owns eMusic through its Dimensional Associates operating company, is leaning towards a sale and has held talks with Best Buy and Rhapsody, among others, sources said.
The digital music market has been consolidating amid a consumer shift from download services like eMusic, towards streaming ones such as Spotify and Grooveshark. MySpace, which like The Post is owned by News Corp., recently bought iLike and imeem, and last week Apple made headlines with its purchase of LaLa.
“They started out looking for financing, but after Apple bought LaLa they began thinking that some of that pixie dust would sprinkle onto them,” said one source familiar with eMusic’s efforts.
EMusic CEO Daniel Stein didn’t deny that the company would consider a sale.
“We’re opportunistic stewards of capital,” Stein said in an interview with The Post. “If an offer was made that created value for our shareholders, we’d listen to it.”
Best Buy did not return a call for comment; Rhapsody could not be reached.
EMusic, which sources say is several times bigger than LaLa, carved out a niche by focusing on independent artists like Vampire Weekend. Recently, it has begun broadening its reach with a deal to license the back catalog of Sony Music. Sources said the service is close to inking deals for the back catalogs of two of the remaining three major labels.
The Sony deal has helped return eMusic to marginal subscriber growth after a few years of stagnation. Sources familiar with its books said it generates between $65 million and $70 million in revenue annually from roughly 400,000 subscribers.
Sources also said the service isn’t in need of cash.
“They’re not growing, but they’re not falling apart either,” said a second source close to eMusic. “They’re not going to give the company away. If they fail to get an attractive offer, they’ll figure out a way to revive the business.”
Sources said eMusic’s backers, which don’t have the five- to seven-year exit horizon of a typical private equity firm and function more like owner-operators, are also seriously considering adding a streaming component in a bid to build upon its recent growth.
EMusic’s customers currently pay flat monthly fees to download up to a certain number of songs. According to sources, the streaming component would be a value-added feature for premium subscribers.
The thinking is that the economics of a download-only model and a streaming-alone model don’t work on their own, but putting them together in a tiered system could help retain subscribers. peter.lauria@nypost.com