FWIW
UPDATE) Digital-Music Firm Liquid Audio Hits Loud Chord On 1st Trading Day
Dow Jones Online News, Friday, July 09, 1999 at 16:36
NEW YORK -(Dow Jones)- An initial offering of 4.2 million common
shares of Liquid Audio Inc. soared Friday as investors anticipate that
the digital-music area may be the next big battleground in electronic
commerce.
At the close, the shares (LQID) traded at $36.563 on volume of 9.3
million, blowing away its pricing of $15. The software company had
expected the shares to be offered at $10 to $12 each.
Liquid Audio, based in Redwood City, Calif., provides open platforms
that enable the digital delivery of music over the Internet. The company
has enjoyed a high profile, thanks to big-name investors like Microsoft
Corp. co-founder Paul Allen's Vulcan Ventures and Intel Corp. (INTC).
Metromedia International Group Inc. (MMG) and Hummer Winblad are its
other large investors.
Last month, Liquid Audio announced a lucrative deal with EMI Music,
which oversees music labels such as Virgin, Capitol and Blue Note. Last
year, most of the company's $2.8 million in revenue was generated from
licensing its software products.
Liquid Audio posted a loss of $8,500 for 1998, a Securities and
Exchange Commission filing revealed. But to fuel its future growth,
Liquid Audio is looking to bring in revenue as an online music community
- via e-commerce, Web hosting for artists and advertising.
The company said its services enable more than 1,300 musicians from
300 labels to publish, syndicate and sell secure music to consumers over
the Internet. Using the Liquid Player software, music fans can access
the company's catalog of music on the 200 affiliate retail Web sites in
the Liquid Music Network.
Liquid Audio employs the controversial technology known as MP3, which
has the music business up in arms because consumers can use MP3 to
transfer copyrighted music from CDs to the Internet where it can be
downloaded for free.
Some market observers think Liquid Audio's IPO could put pressure on
MP3.com, the most prominent site featuring the popular MP3 technology.
MP3.com features a multitude of free music from relatively obscure
musicians and some big-name artists.
MPEG, which stands for Motion Picture Experts Group, is a set of
standards for compressing and storing digital audio and video. MP3 is
short for "MPEG Audio Layer 3," and it identifies a way to store digital
audio files. MP3 files give CD-quality sound in a file format that
requires roughly one megabyte for every minute of sound. By contrast,
CDs and WAV files require about 11 megabytes per minute. This means that
a single song or track in MP3 format usually takes up between three and
five megabytes, providing reasonable download times. Because of this, a
number of MP3 Web sites and newsgroups have popped up on the Internet.
This also means that it is possible to create a digital video disk
containing more than 80 hours of music.
Regardless of where a sound comes from, what a listener actually
hears is analog sound. Computers translate and store this information as
digital sound, however.
MP3 files are based on psychoacoustics - the study of how the human
brain perceives sound. This science has determined that not all of the
sound we hear is perceived by the brain. To create an MP3 file, an MP3
encoder reads a WAV file and then strips out the parts that a listener
won't miss.
So far, there aren't that many ways for investors to cash in on the
digital-music downloading craze. There is online music record label and
retailer GoodNoise (GDNO), a stock that trades on Nasdaq's bulletin
board. The stock has more than tripled so far this year, but it is
volatile, thinly traded and lacks analyst coverage.
Audiohighway (AHWY), another site that allows consumers to download
audio files, went public last year and has doubled from its offering
price but is 50% off its high. Then there's Diamond Multimedia (DIMD),
which makes the portable MP3 player Rio.
Recently, the U.S. Court of Appeals for the Ninth Circuit ruled that
the Rio wasn't illegal.
On Wednesday, Sony Corp. (SNE) announced that it will collaborate
with Microsoft (MSFT) to sell virtual singles over the Internet, and
earlier this month, Real Networks Inc. (RNWK) unveiled its RealJukebox
downloadable music software.
According to Forrester Research, digital-music sales will increase
substantially in the next few years. But sales are still only expected
to be $1.1 billion by 2003, about 7% of total music sales. That figure
pales in comparison to Forrester's 2003 estimate of about $7 billion for
online CD sales by such companies as Amazon.com Inc. (AMZN) and CDNow
Inc. (CDNW).
The downloading of digital music has unsettled the music industry,
which is concerned about safeguarding copyrights.
The Recording Industry Association of America has been working to
develop a Secure Digital Music Initiative, or SDMI, standard, which
would include a way to handle artists' royalties.
Whatever standard SDMI comes up with will probably work with various
formats. The industry is worried about new consumer devices in both
portable and home-stereo versions that will play electronically
delivered music in one format or another.
Copyright (c) 1999 Dow Jones & Company, Inc.
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