MP3 no worse for the wear

By Published on . seems to be old news these days and, as strange as that sounds, that's good news for Michael Robertson, its chairman-CEO.

With all the headlines about Napster as well as other Internet music technologies, MP3 has faded from the limelight -- at least for now. As evidence of this, Mr. Robertson wouldn't agree to be interviewed for this story.

MP3 hopes troubled times are behind the company, a year in which it capitulated to the major labels, first losing a decision by a federal court in New York that found that its service infringed music labels' copyrights. MP3 was the first Internet company to broach the controversial area of free downloaded music.


Then it lost some of that cool brand image when it stopped the downloads and began working with the major record labels. MP3 agreed to pay an estimated $20 million to music labels -- EMI Group, Bertelsmann AG's BMG Entertainment Sony Entertainment and Time Warner's Warner Music Group -- in a legal settlement. It also settled with the National Music Publishers Association in a $30 million settlement. Universal Music Group has yet to reach an agreement with MP3.

Still, Mr. Robertson is undeterred; MP3 is looking to build on its $21.9 million in annual 1999 revenue and start trimming losses that stood at a staggering $177.1 million for the second quarter. Virtually all of that came from the $150 million charge in regards to its payments to the record labels. For the first six months of this year, MP3 had $37.6 million in revenue.

In spite of all this, financial analysts estimate MP3 will be in the black sometime late next year.

More than other Internet music companies, Mr. Robertson was smart enough to lay the base for

longlasting success, say music analysts; it is one of the few Internet music companies with a well-known brand name.


"MP3, the brand, is powerful even if people move on to other technologies," says Ric Dube, music Internet analyst for consultancy Webnoize. "It's like how everybody calls tissues Kleenex," says Mr. Dube. "They should be pretty comfortable for years to come."

That brand name has rung the bell for advertisers, as more than 80% of MP3's revenue comes from them.

Mr. Robertson also is looking to make other deals with labels such as subscription services for their slower-revenue generating genres. MP3 has already announced deals for classical and children's music. For instance, for $29.99 a year, users would have access to more than 4,000 classical tracks.

Perhaps a bigger part of the business plan has MP3 expanding into restaurants, grocery stores and telephone systems with background music. Already the company has struck a deal with Mail Boxes Etc.

"If he can break into this, this is pretty good money," says Mr. Dube.


Financial analysts say MP3 is also continuing to bet that new artists will seek it out to place and market their music. Recently the company said it would continue to offer $1 million a month to artists who post music and audio files to their site.

Give Mr. Robertson credit, say analysts, for hanging in -- and creating alternatives. Mr. Robertson figures MP3 will be one of the few Internet companies to work with the labels. And with more troubled Internet companies running afoul of the big labels, such as Napster, he senses it will end up forcing more of a wider-demographic base of consumers in his direction.

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