iLike’s sale to MySpace, announced earlier this week merits comments on a couple of points.

First, it’s fire sale time. At roughly $20 million, this represents a new low for music-based valuations. In halcyon days, we had seen the prices climb. From Real’s $36 million acquisition of Listen.com in 2003, to Yahoo’s 2004 $160 million acquisition of MusicMatch, followed by the 2007 CBS purchase of Last.FM for $280 million. These last two deals were likely at inflated valuations due to competition for the properties (Viacom for MusicMatch) or desperation, as in the case of CBS. In January 2007, Napster purchased 300,000 subscribers from AOL for $15 million. Also in 2007, the Rhapsody America JV between Rhapsody and MTV roundtripped $230 million through a 5 year note in that amount (from MTV to Real) and a guaranteed ad spend in the same amount (by Real/Rhapsody). And it killed the Urge brand (and service) MTV had invested several million dollars and a couple of years in developing. In late 2007, Microsoft snapped up  Musiwave, in an acquisition that has yet to bear fruit, for a rumored $40 million. And last year’s acquisition of Napster (and its 700,0000 subscribers) for $121 million, included $67 million in cash, which really set the value at $54 million.

Next, the Napster transactions give us a per subscriber valuation – the AOL sub purchase (300k subs for $15 million) equates to $50/subscriber. The Napster sale (700k subs for $54 million) equates to $77/subscriber, but Best Buy was buying the whole company including customers who purchased downloads, not just a block of subs, so the attributable premium makes sense. In iLike’s case, while users do not equal subscribers, an audience of some 55 million was just sold for $0.36/user. This price is a steal for MySpace!

Lastly, of the acquisitions cited above, I would believe that only MusicMatch (due to their much loved downloadable player) was approaching profitability at the time of the purchase. Therefore the valuations were based on either 1) the desire to take a product out of the market so as not to advantage a competitor, 2) add the potential value of a new audience and business to an existing audience and business, 3) technological advantages or 4) a new JV. In iLike’s case, I would surmise that reasons 1 and 3 are applicable – as the MySpace and iLike audiences are highly duplicative. iLike is deeply woven into Facebook, which represents an opportunity for MySpace to disrupt Facebook, and the iLike platform is content-type agnostic.

Given today’s market, iLike should be pleased that they were able to close out a deal. It’s probably not at the valuation anticipated by the shareholders. Spiral Frog wasn’t able to find a buyer, Qtrax is on the skids. imeem’s investors will look at this with concern, as will Project Playlist’s and even Pandora’s and those backing the much-hyped Spotify. Audience is not enough – iLike claimed 55 million users – profitability, despite challenging content terms is key to seeing these valuations reverse their downward spiral.

Last week, Sprint announced a landmark outsourcing deal for mobile carriers, turning over its network operations to Ericsson. The headline number is $5 billion value to the deal and 6,000 Sprint employees wlll become Ericsson employees. Clearly this is a major win for Sprint, which can now focus its resources on customer acquisition, service enhancements, and growing the network, while allowing Ericsson to do what they do best –  maintaining the network infrastructure. It’s an ideal example of shifting the commodity segments of a business to an outside vendor to improve efficiency and profitability, and in doing so, shifting the primary focus to growth of the organization, in this case, Sprint. Essentially, the network operations segments of the wireless business, like those in media are duplicative across providers, even with CDMA/TDMA technology differentials. In media, each major  company – Disney, Fox Interactive, Viacom, NBC Universal, has built largely duplicative network operations facilities. Even in a tight margin business like digital music, Napster, Pandora, Rhapsody and iTunes have their own data centers and ingest, encode and host their own content. As the business of digital media matures, and CEOs and CFOs look for ways to improve the bottom line, I anticipate more deals like the Sprint/Ericsson arrangement. It’s easy to see envision a ubiquitous backend service for rich media.  It’s called Akamai. But a ubiquitous service bureau for licensing, hosting and reporting makes even more sense, between content owners and end distributors. It allows the content owners to focus on creating new content, reduces business development and business affairs cycles, and in turn allows distributors recognize similar efficiencies, and  focus on their primary business – growing their customer base to maximize revenue, product enhancements and creative packaging.