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Technology Stocks : Diamond Multimedia -- Ignore unavailable to you. Want to Upgrade?

To: Urlman who wrote (3696)	9/24/1998 1:38:00 PM
From: nick nelson	Respond to of 4679

mpstation.com The RIO is the MpStation Korean product! Good find Urlman Can't help but notice that since the RIO announcements analysts have been busily downgrading earnings from +0.09 cents to -0.17 cents

To: Urlman who wrote (3696)	9/25/1998 12:59:00 AM
From: Matt Webster	Read Replies (2) \| Respond to of 4679

My thoughts on Diamond and Internet music generally... If you work for JP Morgan and want to hire me as an analyst, please email... :o) Well, if you want advice that may be useful in nine months (that's about how early I usually am), check out companies related to Internet music. The basic thesis is that Internet-based music will be a profitable application of net commerce. The existing model of CD's bought at the record store is obsolete. Instead, music will be packaged electronically and "pushed" to and "mailed" by the user. Personalized Web sites will be the path to a license or subscription to Sony's or Virgin's intellectual property. Traditional RF radio stations will not be as necessary. People will get the benefit of a record club, eliminate the middleman and have exceptional convenience in accessing huge libraries of music. Here's the model: 1) We assume people have access to a reasonably high speed Internet connection. This lets them receive musical content from internet music providers. 2) We require there is an easy way to transfer digital content from the computer to an external storage medium. This is the case. Universal Serial Bus is a high speed, plug and play method for transferring digital data. MP3 is an efficient compression scheme for taking large music files and storing them in a small space. 3) We assume that storage of music is virtually free. This is probably the case because of all the large, empty drives sold with every new computer. Daily application of the model from the end user's perspective: A) People buy the right to personal use of vast music libraries. They may also access the personal libraries of others (music trading). B) They download (marketed as "beaming" or some other newfangled verb) songs they are interested in to their computer. C) With the help of software, they send that musical software to their listening device for either immediate or stored playback. As you can see, there is little room in this model for a middleman. Music is being pirated or otherwise exchanged on a vast secondary market. This forces the hands of the publishers, who must sell licenses or subscriptions lest their entire base of intellectual property becomes instantly worthless. If they do not participate in the new medium, they get nothing, while if they do participate they something greater than zero (perhaps large, perhaps small). As consumers, we buy a subscription to Virgin just as we buy a subscription to Time or Sports Illustrated. Two, perhaps three, types of companies can make money. The first is the major labels, as above, though I question the long-term ability to make much money once their stranglehold is broken. If it's not already the case, they become extremely volatile in earnings. The other is the service that effectively creates personal radio stations. You surf over to mycountrystation.com and are treated to the content that meets your preferences via an Internet jockey (program packager) or some algorithm that mirrors your historical preferences or perhaps the "top 40" of whatever. The third would be a hardware or software company, who gets a lock on key intellectual property via the typical lock-in effect, just like Cisco, Microsoft and IBM. The current leader in the hardware is Diamond Multimedia (DIMD), trading at about $5/share, which is a slight discount to book value. Their main business currently is video cards, which is not doing so great, so they are diversifying into this music idea and wireless networking. This stock trades at disturbing ratios like 0.3x sales, yet has very important positions in electronic retail distribution channels that would be valuable to an acquisitor. The video card industry is due for consolidation. A merger with Creative Technology is possible. Creative also happens to be the leader in DVD-RAM, which is basically a storage medium with obvious application to this model. This is all speculation. THe other ones are along the lines of Internet sites. CDNow (CDNW) is the market leader in CD sales, competing with Amazon.com and others to see who can sell the most CD's at a loss. Perhaps one of them will wake up and realize their distribution model is fundamentally flawed. We'll see. The other way of looking at this is that those overvalued Internet "portals" are the likely musical service providers. My Yahoo!, Excite, etc. will index and "content analyze" music just like they do text now. My favorite pick is Disney/Infoseek. I think Disney has its own record label, so there would seem to be some obvious synergies on the one hand and inertia on the other. My guess is that the smallest record labels will be the first to fall/see the light. The Internet has revolutionized the software industry and much of traditional catalog and retail, so the music scene is just one of many. The difference is that this revolution has been waiting on technology, and now that technology is right around the corner. Those of us who think we can be ahead of the herd will have to pay attention. Good luck everyone. Comments? Matt