Online music may be the future, but the latest batch of earnings from two key Internet music players won't have investors dancing. CDNow missed bottom line expectations and Liquid Audio missed top line expectations. Granted, the online music industry is young, but the results from veteran CDNow and upstart Liquid Audio show the sector may be too undeveloped for many investors. We'll start with CDNow. The company missed First Call estimates in its fourth quarter with an operating loss of 85 cents a share on sales of $53.1 million. First Call estimates called for a loss of 80 cents a share based on a poll of two analysts. Sales were up 154 percent from a year ago, but it doesn't really matter because the music e-tailer will always be compared to Amazon.com. And Amazon reported music sales of $78m (£48m) on Wednesday. Music e-tailing is a two-horse race between Amazon and CDNow and Amazon has all the mindshare on Wall Street. The other real sticking point in the CDNow story is its merger with Columbia House, a joint venture between Sony and Time Warner. Officials said on a conference call last night that the Columbia House merger was expected to close in the second quarter. Initially, the deal was supposed to close in the first quarter. Meanwhile, America Online merged with Time Warner and executives left CDNow hanging for two weeks before they said they supported the Columbia House-CDNow merger. Until the Columbia House deal is done, any synergies that could help CDNow are on hold. And the merger better hurry up -- CDNow has about $20.6m in cash at the end of the fourth quarter compared to $49m a year ago. The theory that has CDNow shareholders hanging on goes like this: CDNow will be the king of digital delivery of music once its in the AOL-Time Warner fold. Via the recent Warner Music-EMI Music joint venture and its likely ties to Sony, CDNow can deliver never-ending stream of hits digitally. Other competitors such as MP3.com have to rely on relatively unknown artists to make a buck. CDNow, which doesn't fulfill its own orders like Amazon and other e-tailers, could have a high margin business once everyone starts downloading music over broadband pipes. The catch? Some analysts say broadband online music distribution may be four years from primetime. What will keep you interested in CDNow shares until then? There are positives about CDNow, but skeptics can shoot holes in those pretty quickly. CDNow is running a promotion with Pizza Hut to deliver custom CDs through February 20. That's good exposure, but guess who's fulfilling the orders? Musicmaker.com, which said earlier this week it's for sale. Musicmaker.com may deliver the goods well, but it is untested to say the least. Untested is an apt description for other online music companies too. Next up: Liquid Audio. Some brokerages (underwriters of the Liquid Audio IPO mostly) will tell you Liquid Audio is the only next generation music stock worth owning. Not so fast. Liquid Audio did report a smaller-than-expected loss, but sales were light in the fourth quarter at $1.3m, down from the third quarter's tally of $1.8m. Analysts were expecting sales of $2m. Liquid Audio had to put $1m on the deferred revenue line because of a delayed licensing contract with its Liquid Audio Japan venture, which trades in Tokyo. In a nutshell, officials said there were some fine points of a contract that didn't get done in time for the fourth quarter. The good news? That revenue will show up in the first quarter. The bad news? Liquid Audio didn't execute well enough to get it done in the fourth quarter. As far as cash goes, Liquid Audio isn't hurting: It had $157.8m in cash at the end of the fourth quarter courtesy of a secondary offering, up from $70.5m at the end of the third quarter. Liquid Audio has dropped the download music model to focus on being a platform for music delivery. That's the reason folks are bullish on the company. The big deal with Liquid Audio is its partnerships. The company recently inked a deal with Microsoft to make available its entire music catalog in Windows Media format. Liquid Audio, which partnered with what could have been a fierce competitor, will operate as a clearinghouse for digital rights management. Liquid Audio is partnered with America Online and RealNetworks and has the music industry in its corner. The company also has alliances with Yahoo! and Amazon.com and can deliver music over MP3 and other formats. Officials said the AOL-Time Warner deal is only good news for them (funny how CDNow said that too). Lehman Brothers, a Liquid Audio underwriter, made a big statement last month and raised its 12-month price target from $50 to $100. Considering Liquid Audio isn't even at the first price target, that's saying something. See ZDII for US tech investor news. See techTrader for more technology investment news, plus quotes and research.