Technology: Internet Music
Giant Adds New Services, Revenue Streams
The music business is full of overnight sensations , the Tokens, Gary Glitter, the Buggles.
Michael Robertson, CEO of the digital music giant MP3.com, Inc., is working to make sure his company doesn’t join the list of one-hit wonders.
MP3.com, which burst onto the music and Internet scene last year, is reinventing itself, much like mega-pop star Madonna.
MP3.com is keeping it fresh with its new music service provider (MSP) concept. Enter the latest beta version of My.MP3.com, which allows consumers to store, customize and listen to their CDs from anywhere, anytime from any Web browser.
“If all your music is on the Internet, you can listen to it at home, at work, on your Qualcomm CDMA phone. That’s what’s really going to bring a buzz back to the digital music space,” MP3.com’s 32-year-old CEO Michael Robertson said.
He said while 1999 was the year of MP3 (which stands for MPEG Layer 3) digital music compression technology, 2000 will be the year of the MSP.
The MSP concept will help grow the music CD market, much like the video rental market has helped fuel movie theater industry.
“If you look at (music) CDs, it’s a $40 billion market,” Robertson said. “We think this is a $100 billion market.”
‘Interesting Proposition’
Tara Limmey, president of the San Francisco-based Electronic Frontier Foundation, a nonprofit group designed to protect online civil liberties and which keeps track of electronic media developments, said the MSP service introduces a whole new way of using the Internet’s architecture.
“Part of their product offering is taking CDs you already own and letting you listen to music wherever you go, but you don’t transfer your whole file over the Internet. So you don’t have someone with a 300-CD collection pushing it all over the Internet.
“That’s an interesting proposition because it takes some of the burden off of the Internet.”
MP3.com’s latest showing is part of the company’s goal of practical evangelism, or showing people different ways of listening to music.
So says Malcolm Maclachlan, media/ E-commerce analyst for International Data Corp., a Mountain View-based industry analyst and information technology data provider.
“MP3.com is diversifying beyond MP3,” he said. “Music service provider sounds a little more grandiose of what they’re doing, but the idea of what they’re doing is very clever. The big knock about MP3.com has been their lack of brand name material. All of a sudden they’ve forced access to it.”
New Revenue Stream
Not only will My.MP3.com give its creator a brand name, it is also hoped to produce another revenue stream for MP3.com.
While the new My.MP3.com technology is currently free to consumers, Robertson said MP3.com plans to make the service subscription-based.
A big chunk of MP3.com’s current revenues comes from site advertising. The company also plans to eventually make money off of its recent purchase of seeUthere.com, an online event planning company. The acquisition allows MP3.com artists to organize and produce their own events, as well as sell tickets.
MP3.com, which has moved twice in a year due to its fast growth, has signed up more than 4,000 record labels and more than 40,000 artists so far. The MP3.com site, which offers 250,000 free songs, has 510,000 visitors a day.
The popularity of MP3 music has made the acronym the most searched for word on the Internet , even ahead of sex , according to the Internet site Searchterms.com.
The number of CDs sold through the MP3.com Web site from September to November 1999 was 56,000.
Partnerships
Over the last few months, MP3.com has also aligned itself with a slew of strategic partners, including PortalPlayer, Inc., designer of chips for next-generation music devices.
“A whole lot of little partners are better than one big partner,” is Robertson’s philosophy.
Although MP3.com has made a lot of noise, the Internet start-up has yet to make a profit. Robertson, who launched MP3.com in 1997, pointed out the company has only been public for about six months.
MP3.com had the largest independent initial public offering until July 22, 1999, raising $252 million. As of last week, the company’s stock closed at $30; the 52-week range is $23 to $105.
“Their stock price has held a lot more of its value than people expected it to,” Maclachlan said. “They’ve done a good job at staying at the front of the revolution. They’re not making much money but at least they’re exploring different ways they could.
“Michael Robertson wants to make billions, but he’ll have to settle for millions,” he said.
Robertson is worth $750 million on paper. His company, which is operating at a net loss, has received a total of $56 million in financing from Cox Enterprises in Atlanta and Silicon Valley-based Sequoia Capital, which has financed such tech companies as Yahoo! and Oracle Corp.
Market Capitalization
“If you look at our market cap, it’s $2 billion,” Robertson said. “That’s pretty healthy for a start-up.”
He then looks up stock quotes for Yahoo! on the ‘Net.
“Look at the five-year graph. For eight months after they went public, they were significantly off their IPO price,” Robertson said about the Internet search engine, whose stock closed at $164 last week.
But, Robertson added, the stock price isn’t always the best correlation of how a company is doing.
“In the big picture, we’re doing pretty well,” he said about MP3.com. “We have $400 million in cash in the bank.”
So do good things really come to those who wait?
Robertson put is this way: “We’ll be profitable before Amazon.com, which isn’t saying much,” he said, laughing.
Many have credited the tenacious Robertson for MP3.com’s coup of the digital music industry. He’s been called a lot of things; he doesn’t mind certain labels.
“I was reading this magazine in this hotel about the 50 San Diegans to watch. I was labeled brash, smart and opinionated. I have to be because that’s what makes MP3.com.”
“I have enormous expectations of myself and MP3.com,” added Robertson, who purchased the MP3.com domain name and launched the company in 1997. “MP3.com still has a lot to demonstrate to the music industry.”
The Electronic Frontier Foundation’s Lemmey said while MP3.com will continue to push the envelope, the company must be sensitive about how it uses its customers’ personal information. She said the more personalized the MP3.com services become, the more important it is to have customer trust.
“These companies need to take into consideration things like major privacy issues,” Lemmey said. “They have a record of every piece of music you own and listen to.
“We are working on a lot of issues in this space , the notion of copyright, ownership, what’s private information and what’s public information. It’s important to look at companies like MP3.com and make sure they’re really well educated on the impact of the innovations they’re making.”
Another major part of MP3.com’s success will be its continued dance with the press, Robertson said.
“The press has become an important vehicle to give a regular heartbeat to the company,” he said. “The company is releasing more press releases. It’s to keep everybody excited about what we’re doing.”
