Last.fm, CBS' $280 million hedge for its radio biz?

Why did CBS decide to spend $280 million to buy Last.fm, a UK-based music community that faces many challengers, and other risks such as the rapidly transforming Internet streaming royalty structure? A vexing question, it has been on my mind ever since I read the news in the Los Angeles Times.

I have been in touch with some folks who know the media business quite well, and they believe that amongst other things Last.fm could be CBS’s hedge for its terrestrial radio operations. CBS, thanks to the Tiffany Network, is widely viewed as a television company. Many overlook the fact that it owns 144 radio stations in 50 markets, a business that brought in about $397 million in revenues in the first quarter of 2007, and an operating income of $156 million.

However, radio sales saw a decline of 9% (maybe because CBS sold off 39 radio stations) and operating income declined 4% when compared to the first quarter 2006. The terrestrial radio business has been feeling the heat, losing the attention battle to iPods and the Internet based music services.

The situation isn’t going to get any better, as music continues to be available everywhere. A whole generation is growing up and turning a deaf ear to the traditional radio. Last.fm, however, is moving in the opposite direction – growing, mostly because of its social features.

It is a community of like-minded (or same taste) music lovers that continues to grow. To distort a cliché, let a billion radio stations boom. CBS could start making money with the obvious business of selling music, but the real thrill would be if CBS takes this (to use another cliché) wisdom of crowds, and turned it into a tool for programming its on-the-air play lists. (Rags outlined this theme in his post, Can social tools save plain ole radio?) (Also, Internet is the Deejay.)

If people-curated news sites like Digg can find traction, why not a people-powered radio. A Last.fm Top 20? If Les Moonves and his able lieutenant Quincy Smith play their cards right, Last.fm could become the underpinning for CBS Radio sometime in the future.

Of course all that is in the future, once the glow of the deal has turned into a shade of reality. CBS will have to work hard to not disturb the core DNA of Last.fm. There are already some rumblings, and some Last.fm community members equate CBS’ presence to cat among pigeons.

Smith, who is leading CBS’ charge into interactive waters, told me that they have no plans to muck around with Last.fm or its community, emphasizing in his ever-so-colorful manner that CBS wants to do the reverse – take Last.fm’s DNA and graft it onto the big brother.

“If the ‘Man’ buys a social network, key is to keep our influence away from it.” As long as he and his bosses remember that, the hedge for CBS Radio could actually pay-off in the long run.

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