January 19, 2001, 12:00 AM

CDNow says it has cash for 6 months

Don Davis

Editor in Chief

Thanks to an infusion from Time Warner Inc. and Sony Corp., CDnow says it has $40 million on hand--enough cash for at least six months. The e-retailer disputed published reports that it has cash for only a month's expenses.
     Last week, in accouncing the collapse of its merger with Columbia House, the online music retailer revealed that Columbia House parents Time Warner and Sony had agreed to invest $21 million and convert an existing $30 million short-term loan into long-term debt. CDnow says it has borrowed all but $10 million under the loan commitment.
     CDnow previously disclosed plans to pare back operating costs and capital requirements during the next quarter. The e-retailer plans to cut costs almost one-third by scaling back marketing and other belt-tightening, such as cutting back on advertising and coupons. The company says it will focus on affiliate marketing, programs with other advertisers, and initiatives that provide an immediate return on investment.
     "Our cost reduction program is expected to result in a reduction in quarterly operating expenses of $10 million to $12 million and a lower ongoing quarterly cash burn rate of less than $15 million per quarter," says Mike Krupit, CDnow's chief operating officer.
     CDnow also has retained Allen and Co. to investigate strategic partnerships and maximize shareholder value. "We are encouraged by the interest we have received since our March 13 announcement and believe it will take less than six months to find another investor or partner,'' says chief financial officer Joel Sussman.


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