Loudeye Busts a Move

Never have so many written so much about a business that makes so little but appeals to. so many. I'm talking about the music-download biz, a topic that excites finance writers, hackers, libertarians, and Silicon Valley execs alike.

We fools are as guilty as the rest, but the news on which I'm wasting precious bandwidth today is actually quite interesting. It could determine the fate of the music-download industry as we know it. Really.

A little-known and barely-above-penny-stock firm called Loudeye (Nasdaq: LOUD  ) announced yesterday that it would purchase the leading European music-download provider, British firm On Demand Distribution (OD2). You may remember our recent peek at OD2, which, together with Roxio's Napster, tried to steal a bit of the thunder rumbling about Apple's (Nasdaq: AAPL  ) European launch.

As opposed to much of the damaging and often meaningless posturing among download providers like RealNetworks, Wal-Mart (NYSE: WMT  ) , Sony (NYSE: SNE  ) , and dozens of others, Loudeye's move has the capacity to really change the competitive landscape. The firm -- just like OD2 -- is something of a music-download "wholesaler," meaning it won't compete directly with those big names.

Instead, it licenses what it calls the largest downloadable music library on Earth and serves digital files, plus enabling software, to other firms that wish to take a crack at the download business. It last made big headlines when it announced a partnership with Microsoft (Nasdaq: MSFT  ) to provide an inexpensive front end for prospective online stores.

Is there money in this business? Not yet. But with more than 100 music-download firms already in existence, and companies like Papa John's, Coke (NYSE: KO  ) , and McDonald's (NYSE: MCD  ) using downloads as promotions, there is definitely a market for what the newly enlarged firm can provide. Factor in future possibilities like phone ringtones and streaming video clips, and Loudeye is definitely worth a closer look.

For more Fool coverage of the music-download business:

• You call this service?
• Are dollar downloads dead?
• See how Apple profits off the pod people.

Fool contributor Seth Jayson has no position in any firm mentioned. View his Fool profile here.