Update: Thumbplay Music Sold To Clear Channel; Fate Of Ringtone Ops Unknown

Update: Clear Channel announced that it is the media company buying the cloud-based music subscription service Thumbplay Music — a deal that was first reported by mocoNews.net. Financial terms of the deal have not been disclosed, but our source says it is likely to be less than 10 percent of the company’s current valuation. AllThingsD says that Thumbplay only managed to sign up 20,000 subscribers, paying $9.99 per month, to its music service since launching it last year. Clear Channel intends to integrate the service into its “iheartradio” online music service, which works on the web, as well as on mobile phones and soon cars. All 75 employees of Thumbplay Music will be offered jobs at Clear Channel (OTCBB: CCMO). Original post, with lots more detail, below.

MocoNews has learned that mobile entertainment company Thumbplay is getting sold. Its cloud-based music service, Thumbplay Music, may be going to a “traditional media company”, with the deal expected to close this week, possibly as soon as today; while the fate of Thumbplay’s other main line of business — selling ringtones, games and other casual mobile entertainment — is still unknown.

Our source tells us that the sale is a do-or-die scenario because the company is running out of cash: “The price is very low. No one is making any money.” The ringtone business is still on the block, and the company is trying to sell it to another ringtone distributor.

We have contacted Thumbplay for confirmation and will update this post as we learn more.

If true, Thumbplay’s story, in a way, doesn’t come as too much of a surprise — the music industry has been hit hard with cannibalisation from digital sales and piracy. And the promise of new revenues, on the back of the explosion in mobile and internet usage, have yet to materialise for most music companies, with Apple’s iTunes dominating the market with more than a 60 percent share. If anything, a Thumbplay sale could be a signal for more sales or closures to come.

Thumbplay was founded in 2004 by Are Traasdhal and Evan Schwartz (who is the current CEO) as a mobile entertainment startup, selling services like ringtones and wallpapers. It launched its cloud-based music service, Thumbplay Music, in 2010. This has the backing of all four major record labels, as well as independents, and has more than 10 million songs in its catalogue, which it sells on a $9.99 monthly subscription, via a smartphone app (iPhone, BlackBerry and Android) or as a desktop app.

What’s getting bought. Apparently not as much as you would think. Our source says that Thumbplay Music was built on a platform licensed from the Oslo, Norway-based mobile entertainment platform provider Aspiro. Aspiro sells both its own-brand music service under the name WiMP, as well as white-label services to companies like Telenor, Portugal Telecom, and Thumbplay. In other words, whatever sale goes down, the price paid will be for Thumbplay subscribers and revenue made from them.

However, it is unclear how many subscribers Thumbplay has at the moment. Visitors to the company’s main site, Thumbplay.com, have been in decline, according to Quantcast, but that’s not a completely accurate marker because the company runs its business mainly via its apps.

Thumbplay has a strong list of backers that include Bain Capital Ventures, SoftBank Capital, i-Hatch Ventures, Redwood Partners, New Enterprise Associates, Meritech, Brookside Capital Partners and Cross Creek Capital; and it has raised at least $41.5 million and was valued at around $400 million back in 2008.

In addition to the founders, Thumbplay has an equally strong list of executives, including Pablo Calamera as the CTO — he was previously director of Apple’s MobileMe, the cloud-based service that seems to have been discontinued of late. Eric Hippeau, the SoftBank partner who recently left his role as CEO of Huffington Post after its sale to AOL (NYSE: AOL), is listed as a director of the company. But several executives are also understood to have left.

Thumbplay’s ringtones business saw a bit of controversy last year, when it was included in a class-action lawsuit in which users accused it (along with others like Motricity) of levying unauthorized charges for content. The defendants never admitted any wrongdoing and collectively settled the case out of court for $10 million.