C-Media invests in online music

C-Media Electronics Inc (驊訊電子), a leading computer audio product maker, yesterday announced that it would acquire a majority stake in the nation's largest peer-to-peer (P2P) music operator Kuro, hoping to duplicate Apple Computer Inc's success in the field.

"We are targeting the largest online music retailer in the Greater China area," Rod Lin (林家億), spokesman of C-Media, said in a telephone interview yesterday.

Taipei-based C-Media said in a filing to the Taiwan Stock Exchange on Monday that it would invest NT$100 million (US$3.05 million) in an online music company, which Lin confirmed to be Kuro, run by Fashionow Taiwan Inc (飛行網).

C-Media and company chairman Cheng Chi-cheng (鄭期成) would take a combined 50 percent stake in Kuro, and Fashionow would hold 20 percent, while the remaining 30 percent would be taken up by three listed compan-ies, Lin said, adding that the investment has been approved by the two companies' board of directors.

Cheng will take over the chairmanship of Kuro, while Kuro's chief executive James Chen (陳國華) will be the president, Lin said.

Encouraged by Apple Computer's overwhelming success in bundling its iPod music player and iTunes music store, C-Media is working with Dem Inc (橙果), a well-known local design firm, to develop a digital music player for Kuro users, Lin said.

Kuro started to sell "Kuro Neo" players, also designed by Dem, for its subscribers at the end of last year. But with C-Media's know-how in manufacturing computer audio products, the company hoped to upgrade the player, as well as to introduce USB powered speakers, audio controllers and other devices that would strengthen the audio quality, Lin said.

As the local market is small, C-Media also plans to boost Kuro's presence in China by cooperating with IGRS Information Industry Association (閃聯) -- a semi-official organization established in 2003 by five of the biggest Chinese computer and electronics companies including Lenovo Group Ltd (聯想) and TCL Corp, to develop standardized products.

Wang Song-ching (王松青), public relations manager at Fashionow which also runs a money-losing Kuro site in China, said given rampant piracy in China, it would take a while for Chinese consumers to learn to pay for online music.

"But we have established brand recognition in the market, which is a bonus for the expansion," Wang said.

But before the new music store can run smoothly, Kuro needs to solve a lawsuit filed by the International Federation of the Phonographic Industry (IFPI) in Taiwan against the company.

Kuro's chairman, chief executive and president, were found guilty of violating intellectual property rights by the Taipei District Court in September last year, and the trio were sentenced to two to three years in prison and fined NT$3 million each.

Kuro had 500,000 members in its heyday, but this declined to 200,000 after the legal dispute and now stands at around 400,000.

Wang said the company has been negotiating with IFPI Taiwan and record labels regarding the settlement and music authorization, hoping to allow users to start swapping music files legally in the platform as soon as possible.

As the new owner of Kuro, Lin said C-Media was also in talks with IFPI on the settlement, but declined to elaborate.

Shares of C-Media dropped NT$6.5 to close at NT$176.5 on the Taiwan Stock Exchange yesterday.