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Alarm:clock is a daily news site that evaluates privately-held technology startups in the areas of hardware, software, the Internet, and wireless communications. One industry overview and one company profile by alarm:clock’s editors come to Technologyreview.com every Wednesday by special arrangement.

Paying the Piper
A startup bets it can get students to pay for music downloads.

Company: Cdigix
HQ: Englewood, CO (moving to Seattle, WA)
Founded: 2002

Management: Last week, the company announced the appointment of Larry Jacobson as CEO. From 2001 to 2004, Jacobson served as president of RealNetworks, and prior to that held senior positions at Ticketmaster Corporation and FOX, including the role of president of FOX Television Network. Jacobson steps in for Brett Goldberg, Cdigix’s 28-year-old founder, who will remain as executive vice president.

Investors: The company recently raised $10 million in a round led by Meritage Private Equity Funds and Novak Biddle Venture Partners. Iron Gate Capital also participated.

Business Model: Cdigix offers a technology platform to universities that allows students to legally download music and video content. The company’s offerings are broken into four areas: Ctrax for music, Cflix for video on demand, Clabs for educational media, and Cvillage for social networking. Universities usually pay a flat fee to Cdigix or students may be charged a modest subscription fee for access to Cdigix’s catalogue of content. Universities are willing to bear these costs primarily because they want to discourage the use of illegal file-sharing services. The company boasts over 30 customers, including the University of Michigan, Purdue University, Duke, and the University of Maryland.

Competitors: Napster, Ruckus Networks

Dirt: Cdigix’s ability to attract “grown-ups” like Larry Jacobson suggests that the current outlook for the company is reasonably bright. Given the emergence and popularity of college-focused networking sites such as thefacebook.com – and the need for universities to stem the flow of illegal downloads across their networks – we are not entirely surprised that Cdigix enticed a seasoned executive like Jacobson to take the company to the next level.

Cdigix is also benefiting from the fact that the legal actions taken by organizations such as the RIAA against brazen individual file-sharers have managed to scare some students straight. The company’s challenge will be to diversify and expand its revenue streams and avoid excessive reliance on university bean-counters. We like the fact that Cdigix is already able to charge students directly for some of its offerings.

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