LOUD Loudeye

Loudeye Acquires OD2 to Create World's Largest Business-to-Business Digital Media Company Acquisition Expands Loudeye's Global Leadership Into Europe With Over 35 Digital Distribution Customers Including Coca Cola, MSN, Virgin and MTV Across 12 Countries SEATTLE, June 22 /PRNewswire-FirstCall/ -- Loudeye Corp. (NASDAQ:LOUD), the worldwide leader in business-to-business digital media solutions, today announced that it has acquired privately held On Demand Distribution Ltd (OD2), the largest digital music provider in Europe. The combination approximately doubles Loudeye's revenues on a pro forma basis and creates the largest business-to-business focused digital media company in the world, providing outsourced digital media solutions to the vast majority of the world's digital media businesses. The combined company now serves more than 200 customers in 15 countries, adding premier European customers such as Coca Cola (UK), MSN (Pan-Europe), MTV (Pan-Europe),Tiscali (Pan-Europe), Wanadoo (Pan-Europe), Virgin Megastores (UK), HMV (UK), Karstadt (Germany), ninemsn (Australia) and numerous other significant retailers, portals, telcos, commercial radio stations and ISPs throughout Europe and Australia. "By combining with OD2, the leading digital music service provider in Europe, we become the largest business-to-business digital media provider in the world with the largest licensed digital music catalog in the industry," said Jeff Cavins, Loudeye's president and chief executive officer. "This significantly strengthens our solutions for our customers globally and immediately expands our customer relationships and partner opportunities. Together OD2 and Loudeye deliver a powerful, next-generation digital media platform to enable companies to launch complete digital music offerings around the world. In addition, this will globalize Loudeye's content management, piracy protection and promotion services and will enable us to leverage OD2's broad reach and strong customer relationships to expand our business into new markets." "OD2 and Loudeye share virtually identical goals, vision and passion for the future of digital music and I see tremendous opportunities for our combined company to drive digital media deployments worldwide," said Charles Grimsdale, co-founder and chief executive officer of OD2. "Our proven success managing the specific challenges of pan-European digital media deployments will be a strong asset for Loudeye and significantly raises the barriers to entry for other service providers looking to enter the European market. Furthermore, Loudeye will enable us to offer a much broader range of new services to our current customers and extend our capabilities into such fast growing areas as the wireless arena." Large Market Opportunity Today's news supports Loudeye's commitment to providing global services by broadening its reach and capabilities into new, key geographic regions including Europe, the second largest music market in the world, and Australia. Annual sales of recorded music in Europe were $11 billion in 2003, with the digital download and subscription market segments growing very quickly. Forrester Research is forecasting that digital music sales in Europe will experience significant growth rates over the next three years, reaching approximately $1.6 billion by 2007. As a result of this combination, Loudeye provides its distribution customers access to the most advanced B2B digital media platform, the broadest licensed digital music catalog and the widest geographic reach in Europe, supporting digital music stores in the United Kingdom, France, Germany, Italy, Spain, Austria, Switzerland, Ireland, Denmark, Belgium and the Netherlands, with additional presence in Australia. OD2's digital media solutions support multiple languages and currencies and manage the complexities of local catalog, licensing and royalty reporting across Europe. The combined company will have the largest licensed music catalog of any provider in the world, including 1.3 million tracks licensed for Europe from the five major labels as well as hundreds of independent labels including AIM, Playlouder, Naxos, Zomba, V2, Saregama and Beggar's Banquet. In addition, OD2 provides best practices and proven business-to-business technology experience, developed from years of deploying and supporting customers in Europe, which will further enhance Loudeye's next generation Digital MusicStore offering. "The first phase of the digital media revolution was the development of technology platforms that could deliver digital content in a high quality and protected manner. Today, the emphasis is rapidly shifting to the delivery of compelling electronic merchandising and monetization of digital content. Now for the first time there is a global company that can help any business extend their customer relationships with digital media merchandising, and launch their own branded customer experience" said Anthony Bay, Loudeye's chairman. "Loudeye offers content owners the means to truly achieve global distribution and protection of their digital content, and enables a wide variety of businesses the means to take advantage of the power of the digital media marketplace." Transaction Terms Initial consideration will total approximately $20.7 million, and will consist of up to 13.95 million Loudeye shares valued at approximately $18.4 million at closing, and an aggregate cash payment of approximately $2.3 million to retire certain liabilities. Loudeye also agreed to pay approximately $17.5 million over the next 18 months, and provided the selling OD2 shareholders the right to earn up to an additional $18.8 million based on OD2 achieving certain growth and profitability targets over the next 30 months. Loudeye may satisfy all future consideration obligations in cash or, subject to approval of Loudeye's shareholders, in Loudeye shares, the number of which will be determined based on Loudeye's share price prior to issuance. Future consideration is payable in UK pounds and the U.S. dollar amounts set forth above may vary with fluctuations in the exchange rate. The shares to be issued by Loudeye in the transaction have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements under the Securities Act. The acquisition will be completed pursuant to a tender offer made today by Loudeye for all of the outstanding share capital of OD2. More than 90% of OD2's shareholders have already accepted the offer, and Loudeye has effectively acquired such shares. The remaining shares are expected to be acquired on the same terms no later than October 2004 pursuant to compulsory sweep-along provisions provided for under English law. Loudeye has also entered into a multi-year employment agreement with Charles Grimsdale, OD2's co-founder and chief executive officer, who will become the president and managing director of the combined company's international business operations, effective immediately. This will help ensure the stability of OD2's current client relationships and facilitate continued growth and global expansion of the business. The senior executive team of OD2 has also entered into employment agreements and will remain in their respective roles to facilitate continuity of operations in Europe and leverage their deep customer and international experience to drive Loudeye's business worldwide. OD2 Business Overview Founded in 2000 by music legend Peter Gabriel and CEO Charles Grimsdale, OD2 is the leading European platform for the distribution of online music and the only company with digital music distribution rights for all major European countries from all five major recorded music companies as well as Europe's largest independent recorded music companies. OD2 provides a "white-labeled" solution for over 35 online retailers, portals, ISPs, telcos and other consumer brands, and powers digital music stores in 12 countries. Through its various distribution partners OD2 has built a database of more than 750,000 registered customers. OD2 employs approximately 80 people and is headquartered in Bristol, United Kingdom, with offices in London, Paris, Cologne, Milan and Amsterdam. OD2 has received expansion capital from leading UK venture capital firm Quester Capital Management Ltd, and Japanese fund NIF Ventures. OD2 has experienced significant growth in its business over the last year. For the quarter ended March 31, 2004 on a UK GAAP basis OD2 generated approximately $2.5 million in revenues, which represented over 80% sequential growth from the quarter ended December 31, 2003 and over 250% growth versus the prior year quarter. "I co-founded OD2 with Charles Grimsdale as I thought there were many exciting opportunities for digitally distributed music," said Peter Gabriel, musician and co-founder of OD2. "As a musician, I believe strongly that all artists should have access to this powerful new means of getting music to people. I'm delighted with OD2's extraordinary achievements. It has created the most successful European platform for the distribution of music from independents and majors alike. By combining with Loudeye, we create the world's largest licensed catalogue of music available for digital distribution. I believe this combination can deliver the best digital music service for both consumers and labels that is also committed to being fair to artists." Updated Financial Guidance As a result of the acquisition, Loudeye expects significant quarter-over- quarter revenue and gross profit growth for the remainder of 2004. Loudeye expects to incur increased expenses from integration costs, non-cash amortization charges required in connection with the transaction, and forecasted OD2 operating losses for the remainder of 2004. Due to the timing of the close of the acquisition, Loudeye's results for the second quarter ending June 30, 2004 will not materially reflect the effects of the transaction listed above. Loudeye will provide additional information regarding a combined financial outlook as part of its second quarter earnings conference call and webcast to be scheduled in July 2004. Investor Conference Call Members of Loudeye and OD2 management will conduct an audio webcast to discuss this announcement. Investors are invited to listen in on this webcast. Management will also provide a slide presentation to accompany its statements, available in conjunction with the audio webcast. Information regarding the investor webcast and slide presentation is as follows: Date: Tuesday, June 22, 2004 Time: 9:00 a.m. EDT / 6:00 a.m. PDT Audio Webcast: 9:00 a.m. EDT / 6:00 a.m. PDT; live and archived The webcast is available at http://www.loudeye.com/. Disclosure of OD2 Financial Information All OD2 financial information is based on UK GAAP and does not reflect any adjustments required for US GAAP presentation. The statement regarding combined pro forma revenues in this release has been calculated by adding results from the three months ending March 31, 2004, taken from Loudeye's filings with the Securities Exchange Commission for the March 2004 quarter and OD2's audited financial statements for the fiscal year ended March 31, 2004. Because the companies prepare these results using different GAAP requirements in the U.S. and U.K., the measurement methods described above may result in amounts that differ from amounts resulting from other methodologies the companies may use in the future. About Loudeye Corp. Loudeye is the worldwide leader in business-to-business digital media solutions and the outsourcing provider of choice for companies looking to maximize the return on their digital media investment. Loudeye combines innovative products and services with the world's largest music archive and the industry's leading digital media infrastructure enabling partners to rapidly and cost effectively launch complete, customized digital media stores and services. For more information, visit http://www.loudeye.com/. Forward Looking Statements This release contains forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995, including statements forecasting the attainment of expanded market position in connection with its acquisition of OD2, the projected growth in market share and user base, as well as the imminent mainstream adoption of digital music across distribution channels worldwide and statements by Loudeye's president and CEO and OD2's chief executive officer. These statements are based on current expectations and actual results may materially differ due to risks, including unexpected difficulties or costs associated with the integration of the acquisition, including OD2's technology, customers, and certain personnel into Loudeye's existing technology infrastructure, operations and business; diversion of management time related to the acquisition integration; Loudeye's ability to retain OD2's customers and key management and technical personnel; delays in the adoption of digital music among Loudeye's distribution partners; effectiveness of OD2's solution in launching complete, private labeled music stores; the ability to develop OD2's solution to integrate with any future DRM, devices and media formats as they are developed; and other risks set forth in our most recent Form 10-Q, Form 10-K and other SEC filings which are available through EDGAR at http://www.sec.gov/. We assume no obligation to update the forward-looking statements. DATASOURCE: Loudeye Corp. CONTACT: media/public relations: Karen DeMarco of mPRm, +1-323-933-3399, or , for Loudeye Corp.; or investors: Michael Dougherty of Loudeye Corp., +1-206-832-4000, or Web site: http://www.loudeye.com/

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