Online Music Retailers Hitting Sour Note
By John Filar Atwood
multex.com
Online music retailer LAUNCH MEDIA's (LAUN) April 23 IPO demonstrated that investors are still reluctant to
embrace companies that sell tunes over the Web. The company's stock jumped from $22 to $36.70 on its first day
of trading but has since fallen lower.
"There's a flaw in the business model," according to Lauren Cooks Levitan, senior e-tailing analyst at
BancBoston Robertson Stephens. "Companies have not yet figured out how to make the online delivery of music
a profitable, sustainable business."
With companies spending substantial sums to obtain customers, Ms. Levitan noted, investors can't see how
online music retailers will become profitable. CDNOW (CDNW), for example, lost $2.79 per share in 1998 and is
expected to post additional losses through at least 2002, she said.
MUSICMAKER.COM (MMKR-proposed), which is preparing to go public within the next few weeks, reported
net losses of $4.6 million in 1998.
Ms. Levitan said the general wariness of online music retailers' stock stems from the market segment's lack of an
obvious leader. "With Internet segments, investors are willing to pay for a clear winner," she noted.
Online music retailers — both traditional ones like CDNOW and newer entrants like AMAZON.COM (AMZN) —
are being challenged by GETMUSIC.COM, formed April 7 by music labels UNIVERSAL MUSIC and BMG
ENTERTAINMENT. The combination of a large music label and a top distributor may give GETMUSIC.COM a
leg up on the rest of the field, Ms. Levitan said. |
