Summary:

Turns out, supermarkets want to rule the UK’s digital media roost.

Tesco is buying up plucky online music service We7 as the latest plank of its digital ambitions.

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photo: Corbis

Turns out, supermarkets want to rule the UK’s digital media roost.

Tesco is buying up plucky online music service We7 as the latest plank of its digital ambitions, with 91 percent selling for £10.8 million and the remainder lined up by the chain for later, according to MusicWeek.

Propelled on funding from Eden, Pentech, Spark, Qualcomm and the early founding pair of Peter Gabriel and CEO Steve Purdham, wandering We7 initially aimed to embed audio ads inside free track downloads. That didn’t work. Then it tried offering unlimited streaming tracks with web ads and mobile subscriptions, which were sparsely adopted, before recently flipping to offer Pandora-like personalised online radio.

We7 has been a much valued, indigenous UK online music player. But, in truth, it has never garnered sufficient traction to make it a significant player. In a world of Spotifies, it now needs another entity to take it to a different place. Supermarkets, which want to replicate their increasing role as seller of physical entertainment content in an online space, may be that entity:

  • In 2011, Tesco acquired 80 percent of paid movie and TV streaming service Blinkbox so it can offer complementary streaming to Clubcard-holding customers who buy DVDs with their groceries.
  • J. Sainsbury acquired white label digital content vendor Global Media Vault to supplant its movie, CD and book retail site with digital content.
  • Sainsbury also just acquired a majority of aNobii to move in to e-book discovery and retail.

Each has operated rudimentary download-to-own (DTO) stores for some time but, in the world of access over ownership, each is acquiring defensively to trump the threat from Amazon.

Each of these acquisitions is relatively low-priced, such is the state of this catch-up segment of the UK market; none of the players has reached dominant status.

It is likely that Tesco, as with Blinkbox, will want to offer We7’s streaming music to Clubcard-holding customers, perhaps those who purchase equivalent physical music CDs at its check-outs.

Digital media M&A advisory house GP Bullhound advised both Tesco on the We7 deal and Sainsbury on aNobii, saying: “Exiting shareholders include co-founder Peter Gabriel and institutional investors Eden Ventures, Qualcomm Ventures and Pentech Ventures.”

Digital music analyst Mark Mulligan observes: “Paid content is a product line which would clearly be new revenue opportunity for Tesco and music would be the obvious lowest common denominator.”

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