BSkyB-backed Music Choice is sold for just £2.7m

Music Choice Europe, the digital music company backed by Rupert Murdoch's BSkyB that was once worth more than £200m on the stock market, has been sold for just £2.7m.

Floated at the height of the internet boom in 2000, the company has failed to pull in the advertising envisaged at the time. Sky is the biggest shareholder in MCE, with a 36 per cent holding after the listing, while the original investors in the business, Time Warner and Sony, now have 16 per cent and 8 per cent respectively.

The company raised £50m from its flotation, which was handled by Investec Securities. It is thought that another £30m was put in before the listing. As well as the inability to garner significant advertising sales, MCE said yesterday that its other revenue source - a subscription paid to it by television companies for carrying MCE channels - was also drying up.

MCE provides audio-only music channels that are played out on television platforms, such as Sky, with no interruptions by a DJ or advertisements. Instead, the company aimed to attract ads that would be put on the TV screen in graphic form, while the music played

In February this year, MCE warned: "The board expects that TV broadcasting platforms will seek greater discounts for basic content which is, currently, the prime source of the company's revenue and that this will place increased pressure on margins. At the same time, the costs to the company of maintaining its technical infrastructure are increasing."

But the company had, in effect, already been put up for sale by that time, through the "strategic review" announced in 2004. The main shareholders had given up on the business by then and so MCE returned £15m of its excess cash to investors in September 2004.

MCE has been bought by a group of individual investors, operating through a company incorporated in Jersey, IGC, which is paying 8p a share - slightly below the company's opening price yesterday.

Margot Daly, MCE's chief executive, who will stay on under the new owners, said that the company now had new opportunities to "gun for" in broadband and mobile platforms.

She said that the company's offering was different from rivals in that it offered specialised genres of music played continuously.

"It is the quality and breadth of our tailored music that makes us stand out. We are creating an atmosphere for people, as an accompaniment to whatever is going on in the home at the time," Ms. Daly said.

MCE has some 70 channels, offering music in styles such as easy listening or dinner jazz, that play 24 hours a day. It has deals with television platforms throughout much of Europe, the Middle East and even China.