Music download site Tunes.com files for IPO
By Bloomberg News
Special to CNET News.com
June 15, 1999, 12:20 p.m. PT
WASHINGTON--Tunes.com, which runs a Web site where visitors can download music for free, filed to raise $46 million through an initial public offering.
The Chicago-based company, which is backed by Goldman Sachs, invites visitors to its Web site to download songs of "near CD-quality" using various digital technologies such as MP3 files.
Tunes.com also hosts Web sites for Rolling Stone and two other music industry magazines: Down Beat, which covers jazz and blues, and the Source, which covers hip-hop. The company said its constellation of sites, all of which are linked, is designed to appeal to a broad spectrum of music fans with tastes ranging from rock to classical.
"We intend to create the premier online music network, providing music fans with extensive and exclusive music content, community features, and e-commerce services," the company said in its IPO filing with the SEC.
The free songs that can be downloaded from the Tunes.com sites are available with permission from the artists or their recording labels, the company said. Most of the songs are by unsigned artists viewed as promising newcomers by editors at Rolling Stone or the other two magazines.
In addition to downloading music, visitors can watch live concerts or music videos or listen to originally programmed Rolling Stone Radio, the company said. Its revenue comes from advertising, sponsorships, selling CDs online, and by content syndication to a number of Web portals, including Yahoo, Netscape, AltaVista, and Lycos.
Sixty-second sound bites of recordings by established artists also are available for downloading at Tunes.com as a way to promote the CDs offered for sale on its site. The filing warned prospective investors that it does not have licenses for many of these "audio previews" and that it has received a letter from the Recording Industry Association of America telling it to pay licensing fees for these as well as for much of the album art and music videos it displays.
"We could...be required to remove this content from our Web sites, pay substantial royalties, pay substantial infringement damages and penalties to the content copyright owners, incur substantial legal fees, and other costs," the filing said. "It is also possible that the copyright owners could successfully seek to shut down our Web sites."
The RIAA also has notified Tunes.com that it must obtain licenses for sound recordings heard on Rolling Stone Radio.
Royalty rates have been the subject of "protracted negotiations" between the RIAA and the Digital Media Association, a new trade group for Webcasters, the filing said.
The record companies that belong to the RIAA are anxious in general about the future control of digital music and are working on ways to protect their copyrights and royalties. Recently they agreed on a standard for encrypting, or "watermarking," digital music.
The recording companies also are eager for some control over this new distribution channel, which many people believe will become as commonplace as CDs or audiocassettes. Record companies, in partnerships and alone, are working to develop their own ways to distribute music online.
Pointing to the GetMusic.com site jointly operated by BMG Entertainment and Universal Music Group as an example, the Tunes.com filing noted that recording companies may opt not to provide any content for its site for competitive reasons.
Howard A. Tullman, 53, is the company's chief executive and chairman. Previously, he was the chief executive of Imagination Pilots, which develops interactive CD-ROM games and educational software. Before that, he worked for Eager Enterprises, a venture capital firm concentrating in computer industry investments.
Tullman holds a 5.1 percent stake in the company before the IPO. Goldman Sachs holds a 27 percent interest before the IPO. Straight Arrow Publishers, which publishes Rolling Stone, holds a 12.5 percent stake before the IPO.
The company reported a net loss of $3.9 million on revenue of $977,000 in the first quarter of this year. It reported a net loss of $1.6 million on revenue of $454,0000 in the year-earlier period.
Tunes.com says it will use the proceeds from the sale to expand sales, advertising, and marketing programs; develop strategic alliances; finance capital expenditures; and fund other general corporate purposes.
Tunes.com hired Salomon Smith Barney to underwrite the stock sale with SG Cowen Securities and U.S. Bancorp Piper Jaffray. The company wants its shares to trade on the Nasdaq Stock Market under the symbol "TUNZ."
Copyright 1999, Bloomberg L.P. All Rights Reserved.
.....RollingStone Radio is a RealNetwork product, basically means more licensing revenue foe RNWK if I'm reading this right. |
