According to a Reuter’s news report, Sacramento, California-based Digital Music Group’s hopes to catapult into the digital music market took an unexpected turn today. Shares of the company, priced for its IPO at $9.75, took a plunge at the opening of trading to as low as $8.36 a share. Shares of the offering closed at $9.25 after raising about $38 Million to fund the company’s ongoing operations.
The company buys back catalog and out-of-print recordings by a variety of artists across genres to digitize them and then sell them through online music services, including Apple’s iTune’s store.
The company had originally priced the shares around $8, but thought it could get between $9 and 11. It stands to reason that if they’d kept the original price, the stock may have held steady if investors believed that the company was worth the earlier asking price. By raising the price, the company inadvertently may be leading the market to believe that the digital music landscape continues to be an unsettled one and the risk is greater than the return.
At the end of the day, the fact that a pure digital music play went out to market to raise $38 Million in an IPO does speak to a willingness of investors to accept digital music in its current form as inevitable and a worthwhile investment, despite the various technological and legal restrictions, while entrenching digital content plays into the minds of Wall Street analysts as a viable way to sell music and other digital media and make a profit.
Apple iTunes approximatley 500 Million downloads, the Google rumors about Napster and Real Networks 1.2 Million paid subscribers has shown the market that there is a business around the sale of digital content. This IPO confirms it, even though it wasn’t a blockbuster. Companies watching will be tweaking their business plans and readying themselves for the same path soon enough.
Web 2.0 is upon us and I hope we all learned something over the past 5 years.