CBS buys Last.fm for $280m, plans more ads

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As hinted at back in February, Last.fm has been trawling around looking for a buyer and today it found its harbour in the form of a US media giant. The 'social music' site has been bought by CBS Corporation for $280m (£140m). This is less than the earlier rumour, but still the largest-ever buyout of a UK-based "Web 2.0" site.

The site was founded in the UK five years ago (you may have heard the stories about the founders sleeping on the office roof in a tent when they couldn't afford accommodation). It now has more than 15 million active users. Users basically connect with other listeners with similar music tastes, build their own personal radio stations and watch music video-clips.

Although the announcement today says that Last.fm's managing team (founders Felix Miller, Martin Stiksel and Richard Jones) will stay and the site will maintain its own separate identity, I can't see this staying this way forever, now that it's part of CBS, which will probably ditch the European sensibility of the service.

Stiksel reportedly said: "This move will really support us to get every track ever recorded and every music video ever made onto Last.fm." He also says LastFM will "put the users in charge. CBS gets this." Time will tell, time will tell.

Meanwhile for the less cynical among you, here is co-founder Richard Jones on the company blog today:

"The team here have spent a lot of time this year discussing what the future should hold for Last.fm, and while contemplating raising some additional venture capital we were approached by CBS. As you can imagine, we have been approached numerous times in the past few years from all the usual suspects regarding acquisitions and so on; CBS are one of the few companies who needed no explanation of what we are doing, and we were impressed at how progressive their plans are. This deal with CBS gives us a chance to really make Last.fm shine, and gives us more flexibility than other funding options would for doing all the crazy stuff we’re had scribbled on whiteboards for years."

So why did CBS buy it? CBS radio is the largest radio group in the United States, with 179 stations in the top 50 markets, but traditional media growth is stagnating and all the action – as everyone knows, especially when it comes to music and the youth market – is all online. The purchase thus adds to an advertising portfolio that already includes conventional radio, broadcast and cable TV and outdoor services.

CBS now has a strategy of reaching as big an audience as possible, not on creating content. It sounds like they plan to rely more on the users and viewers themselves to do that. In fact, CBS CEO Leslie Moonves says Last.fm's community play us "central to CBS". In truth CBS is coming late to the now established idea that music is a natural community builder and therefore a very 'sticky' eyeball attractor. As an anonymous CBS executive has already said: "We see it as a chance to get new eyeballs — or in this case earlobes."

As for the price, it looks easily affordable by US standards. Consider some earlier deals: News Corp bought MySpace for $580m (£290m) in 2005. Google paid $165bn (£82bn) YouTube in 2006. But according to the LA Times, the final price for closely held Last.fm could rise substantially if performance targets are met. Last.fm got its first round of funding last May from Index Ventures.

There may be a problem for LastFM in that in the US the recent ruling by the Copyright Royalty Board massively increases the royalties Internet broadcasters have to pay for streaming digital songs. This has already hit Pandora's plans to expand outside the US.

However advertising may offer more hope. Although LastFM recommends music for purchase, sales are not in fact a big revenue earner. Instead CBS will probably create sponsored channels, garnering bigger corporate deals with its existing sales contacts.

Expect also CBS radio stattions to start to appear on LastFM. Country AND Western anyone?

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