July 11, 2007

By By Antony Bruno, Denver

Digital Music Group Inc. and The Orchard have agreed to merge, creating an interesting mix of content ownership and distribution across both video and music assets.

The combined business will retain Digital Music's Nasdaq listing and change its name to The Orchard, according to a statement. Orchard's CEO Greg Scholl, will lead the combined company.

The Orchard is a digital distribution firm that helps various independent artists and labels get placement on digital music services such as iTunes. It also serves as a marketing agent for clients looking to license their music in various outlets.

DMGI does the same, but owns a much larger collection of assets, particularly video. While The Orchard owns a few small jazz and world music labels, DMGI's catalogue of master recordings and video clips -- from classic TV shows to stand up comedy performances -- is far greater and was a driving factor of the deal.

Additionally, the merger allows privately-owned The Orchard to take advantage of DMGI's status as a publicly listed company to raise funds on the stock market. The Orchard is owned by venture capital firm Dimensional Associates -- which also owns eMusic.

Under the terms, Digital Music will issue about 9.1 million common shares and around 4.5 million shares of convertible preferred stock to Orchard's shareholders. DMGI CEO Mitchell Koulouris will leave the company, with current CTO Karen Davis filling that role in the interim until the merger is complete, expected sometime in the fourth quarter.

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