Wed, 21 Jul 1999, 9:11pm ,,MP3.com Shares Double in First Day of Trading
By Per H. Jebsen
San Diego, July 21 (Bloomberg) -- MP3.com Inc., a 16-month
old money-losing Internet music company, more than doubled on its
first day of trading, as investors bet it will revolutionize
music distribution.
San Diego-based MP3.com closed with a market value of $4
billion, almost two-thirds that of EMI Group Plc, the world's
third-biggest publicly-traded music company. MP3.com's shares
surged 35 5/16 to 63 5/16 as almost 16 million shares traded on
the Nasdaq Stock Market.
MP3.com, which lost $1.4 million this quarter on sales of
roughly $666,000, allows people to download CD-quality music,
often for free, from a library of 100,000 songs from more than
18,000 artists.
The company offers listeners music from ''lesser-known and
local artists'' who are often overlooked by major record labels,
the company said.
''Investors now seem to be very interested in the digital
delivery of music and other media,'' said Eric Efron, co-manager
of the $1 billion USAA Aggressive Growth Fund in San Antonio,
Texas. ''When investors see this type of stock working, they
automatically want to buy the next one''
The recent success of IPOs by music and audio-related
Internet companies such as Musicmaker.com Inc., Liquid Audio
Inc., and Audible Inc. helped increase interest in MP3.com, he
said.
Reston, Virginia-based Musicmaker.com is an Internet company
that lets customers compile their own CDs, Redwood City,
California-based Liquid Audio sells software that allows
consumers to download music from the Internet, and Wayne, New
Jersey-based Audible delivers audio versions of books and
newspapers over the Internet.
Threat
MP3 technology could compete with traditional record
companies because it allows artists to distribute music online,
at reduced cost and with greater control. Also, MP3 technology
generally allows individuals to download and distribute
''pirated'' copies of copyrighted recorded music, which hurts the
profits of established music companies and their artists.
The big record companies are scrambling to develop a
universal standard for electronic music delivery called the
Secured Digital Music Initiative. This would provide better
security in music distribution than MP3 technology, but might
pose a threat to companies that rely on MP3.
Major music companies such as EMI, Seagram Co.'s Universal
Music Group, Time Warner Inc.'s Warner Music Group, Sony Corp.'s
Sony Music Entertainment, and Bertelsmann AG's BMG Entertainment,
control about 80 percent of the roughly $39 billion worldwide
music.
''Industry players have been so eager to dampen any momentum
MP3 had as a format that the great benefits of digital
distribution -- including use of MP3 -- remain vastly under-
exploited,'' said Mark Mooradian, an analyst with Jupiter
Communications LLC.
Limited Growth?
A recent study from Jupiter predicts that downloading from
the Internet will achieve just $147 million in sales by 2003
because of the big music companies' failure to tap into the
medium's distribution potential.
''There are two classes here -- the music industry, which is
interested in protecting its distribution, and the Internet
crowd, which is more focused on the consumer and the independent
artist,'' said Michael Robertson, MP3.com's chief executive, in
an interview this spring. Robertson, 32, has a stake worth $1.6
billion.
The music industry ''either needs to get in on the game or
watch the entire industry go to somebody else,'' he said.
MP3.com isn't worried that its namesake technology will
become obsolete because the company intends to adapt to new
technologies as they develop, he said.
''MP3.com is the next MTV, except it will grow much
bigger,'' he said.
MP3.com lost $1.4 million in the three months ended March
31, and $358,000 in 1998, when it had sales of $1.2 million.
About 84 percent of the company's sales came from online
advertising in the first quarter of this year.
The company had 141 employees as of June 30, up from 8 at
December 31.
''This is a tiny company with very low sales and pretty
heavy losses, and we don't expect those losses to disappear for
some time,'' Efron said. ''Investors should go into this
investment with their eyes wide open.''
Groupe Arnault
The French company Groupe Arnault, which has interests in
luxury goods companies such as LVMH Moet Hennessy, agreed earlier
this month to buy $150 million of advertising and other services
from MP3.com over the next five years.
A unit of Groupe Arnault bought 3.3 million of the 12.3
million shares sold by MP3.com at $28 each, raising $344.4
million. The sale represented an 18 percent stake. Groupe Arnault
has a stake of about 5 percent following the sale.
Cox Interactive Media Inc., which invested $45 million in
the company in June, has 9.4 percent of the shares following the
initial sale. Sequoia Capital, a venture capital firm, has about
15 percent of the shares.
MP3.com's shares were priced $2 above the top of the $24-to-
$26 range set by Credit Suisse First Boston Corp., which handled
the transaction. CS First Boston raised the range to $24-to-$26
from $16-to-$18 earlier today. It raised the range from $9-to-$11
on July 12.
The company will use about $10 million of the sale proceeds
for marketing and promotional activities, $8 million for capital
expenditures, $4 million for concert sponsorships, and $2 million
to expand its facilities, the company said in its IPO filing.
MP3.com trades under the symbol MPPP. Hambrecht & Quist LLC
and BancBoston Robertson Stephens assisted in the sale. |
