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News Corp-backed Beyond Oblivion bankrupt before launch

Friday, 27 January 2012 | By Michelle Hammond

New York-based digital music start-up Beyond Oblivion has filed for bankruptcy before its launch, despite financial backing from News Corp and nearly $90 million from investors.

 

Beyond Oblivion was founded in 2008 by British entrepreneur and music producer Adam Kidron. In the last two years, it raised $87 million in venture funding.

 

The company is partly owned by Rupert Murdoch’s News Corp along with Stanley Shuman, director of investment bank Allen & Co.

 

News Corp paid $9.2 million for a 23% stake in Beyond Oblivion in April 2010, according to company regulatory filings. At that time, Shuman had an 18% stake.

 

In News Corp’s fiscal year through June 30, 2011, the company pumped an additional $2 million into the digital music company.

 

As of June 30, News Corp and Shuman owned around 20% and 14% respectively.

 

Kidron’s idea was to offer an online music service – dubbed “Boinc” – that would be not only completely free of subscription fees but also free from advertising.

 

It was a cloud-based service allowing users to store and share music across multiple devices including MP3 players, mobile phones and computers.

 

It intended to pay a royalty to record labels each time their music was played. This would be funded by charging consumers a flat fee on the hardware – be it a mobile phone or computer.

 

According to a filing at the United States Bankruptcy Court, Beyond Oblivion owes creditors between $100 million and $500 million, with estimated assets of less than $10 million.

 

Its two largest unsecured creditors are major music companies Sony Music Entertainment and Warner Music Group, both of which are owed $50 million for what is described as “trade debt”.

 

According to Kidron, the start-up suffered from the difficulty of “coordinating the diversity of the ecosystem”, including complex licensing deals for artists, labels and manufacturers.

 

“Beyond was always a tremendously grand ambition as the advances required by the record labels and music publishers were substantial,” Kidron said in a statement.

 

It’s understood Beyond Oblivion also struggled to persuade hardware manufacturers to collect payments from consumers when they purchased the product.

 

The company had originally planned to introduce the service in October 2010 but postponed the launch as negotiations with potential partners dragged on.

 

More recently, it said the launch would take place in early 2012, although the growing losses from the continual delays eventually caused it to start reining in its operations.

 

It’s also been reported the service burnt through its $87 million fund, raised from a host of investors including News Corp, which invested $11.2 million in two separate funding rounds.

 

A public launch for the service became even less likely towards the end of 2011 when Facebook made sweeping changes to its site, bringing it closer to rival music players including Spotify.

 

Beyond Oblivion suffered a further setback in October last year when Spotify partnered with Virgin Media, giving customers of the United Kingdom’s second biggest internet service provider six months of free premium access to the music player.

 

BT, the UK’s largest ISP, was also planning to launch its own digital music service in 2011, although no launch is thought to be imminent.

 

As well as the rise of increasingly popular music streaming services, Apple has continued to improve its market-leading iTunes.

 

Beyond Oblivion is the latest digital investment by News Corp that has failed to take off.

 

In 2005, Murdoch acquired social network MySpace for $580 million, only to see it lose its stature to Facebook. MySpace was sold last year for just $35 million.

 

Its iPad-only newspaper The Daily also failed to make an impact.