INgrooves buys Fontana Distribution from Universal Music Group

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INgrooves, a San Francisco digital music distribution company, has purchased Fontana Distribution in Los Angeles from Universal Music Group for an undisclosed sum.

Fontana specializes in distributing music for independent labels such as Vagrant, Strange Music and Rap-A-Lot. Last year, Fontana handled the distribution for 800 releases, selling about 7.5 million physical records and 3 million digital albums for more than 200 labels.

The acquisition, which closed Thursday night, significantly beefs up INgrooves’ capabilities. The company, founded by Robb McDaniels in 2002, had focused almost entirely on digital distribution, processing about $1 billion worth of digital music a year through more than 600 online retailers such as Amazon.com, iTunes, MySpace Music, Zune, Deezer, 7 Digital and others.

Fontana enables INgrooves to offer a more complete suite of distribution services -- both physical and digital.

Ron Spaulding, the head of Fontana, will head up INgrooves’ physical distribution business in Los Angeles, while Dave Zierler will run the digital distribution operations out of San Francisco, the company said.

For Universal, the sale accomplishes several things. It strengthens INgrooves, in which Universal owns a minority stake. And it divests Universal of a distribution asset, raising a modicum of cash to help it finance its $1.9-billion acquisition of EMI, announced in November.

At the time of the announcement, Universal said it would sell off non-core assets to help finance its purchase and help win regulatory approval in the U.S. and Europe. Fontana, however, is not considered part of the main divestiture, which is expected to kick off this spring once Universal decides which assets to sell. That sale will likely include certain music catalogs, according to executives knowledgeable with the process.

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-- Alex Pham