Here ya go:
Good Vibes Surround GoodNoise
By Spencer E. Ante
Staff Reporter
5/6/99 7:00 PM ET
SAN FRANCISCO -- Bob Kohn didn't waste any time
searching for the next Amazon (AMZN:Nasdaq). In the fall
of 1997, Kohn was chief legal counsel for PGP, a hot
encryption-software company about to be bought out by
Network Associates (NETA:Nasdaq). Kohn saw an
opportunity in the Internet's underground music scene and
quickly threw together a business plan to sell music in
downloadable files.
When PGP was acquired on Dec. 1, 1997, Kohn and PGP
colleague Gene Hoffman lunched with Ralph Peer, who
owned the world's largest privately held music-publishing
company, Peermusic. Peer was intrigued by the
makeshift plan. By the end of the meal, Kohn and
Hoffman's Net venture, GoodNoise (GDNO:OTC BB), had
found its first investor. Over spaghetti Bolognese, another
.com was conceived.
"Since then, it's been moving at Internet speed," says
Kohn, GoodNoise's 42-year-old chairman. "It's just been
phenomenal."
It's hard to disagree. Since it was founded in January 1998,
GoodNoise has established itself as a leader in the
nascent market for downloadable music on the Internet. By
acquiring the exclusive digital distribution rights of a wide
range of music, GoodNoise is vying to become the leading
online aggregator and merchant of music from independent
labels. The company currently sells 1,200 titles and plans
to sell at least 10 times as many by year-end.
More surprising, GoodNoise is the only public pure play in
the burgeoning market for downloadable music. For an
Internet start-up, the company took an unusual route to the
capital markets. In May 1998, it merged with Atlantis
Ventures, keeping Atlantis' listing on the OTC market but
changing its ticker symbol. GoodNoise is planning to
become a full-fledged Nasdaq stock -- the company has
applied for a Nasdaq listing and meets the exchange's
requirements. Jason Noah Ader, an analyst with H.C.
Wainwright who covers GoodNoise, says the new listing
should happen in the coming weeks.
The stock has risen 154% so far in 1999, closing at 17 3/4
Wednesday. With a market cap of $250 million,
GoodNoise isn't your typical bulletin board stock. It has
brought on Gary Culpepper, a 20-year veteran of the music
and film industries, as its executive VP of business affairs
and, more recently, Peter Harter, Netscape's
(NSCP:Nasdaq) former VP of public affairs, to oversee
governmental matters at GoodNoise. Harter turned down a
post at @Home (ATHM:Nasdaq) to take the job. "I was
incredibly impressed by the management team and their
business plan," says Ader, who gives the stock a strong
buy/speculative rating. "This is a serious company."
After years of hype, the Internet is finally starting to deliver
on its promise to transform the production, distribution and
marketing of the $35 billion music industry. Driving this
change is an audio- and video-compression format called
MP3, which stands for "Motion Picture Experts Group-1
audio layer three." To the growing crowd of musicians and
consumers who have embraced it, MP3 isn't just a format:
It's a sort of brand representing a new more democratic
future for the oligopolistic music business.
Forrester Research estimates that digital downloading
will add $1.1 billion to the U.S. music industry by 2003.
Jupiter Communications, a market research firm,
projects that digital distribution will account for 2.2% of
prerecorded online music sales by 2002. Ader estimates
sales of downloadable music from independent labels will
reach $90 million to $140 million, or 10% to 15% of total
online sales of indie labels, by 2002. GoodNoise, says
Ader, could garner about 50% of that market. Currently,
GoodNoise sells single songs for 99 cents and whole
albums for $8.99.
But being among the first in a market isn't a guarantee of
long-term success. That's why GoodNoise is aggressively
signing up artists and labels. Already, GoodNoise has
locked up the exclusive digital rights to Frank Black and
They Might Be Giants, two high-profile alternative rock
musicians. In fact, GoodNoise will soon be releasing They
Might Be Giants' new album, Long Tall Weekend, marking
the first time that an established artist releases an
MP3-only album.
Last October, GoodNoise acquired Nordic
Entertainment, which owned the largest catalog of
downloadable music, including some of the works of Jimi
Hendrix, Patsy Cline and Louis Armstrong. And in
February, GoodNoise achieved a coup by signing a
distribution deal with Rykodisc, the largest label yet to
support MP3 files. Initially, GoodNoise will sell more than
175 songs from 50 Rykodisc artists, which include
musicians like Frank Zappa, Bruce Cockburn and
Morphine. Most contracts are exclusive for 10 years.
"We've got record labels calling us from all over the world,"
crows Kohn, who co-authored a book on music licensing.
"We've got 100 contracts out the door."
Another big change in the offing: GoodNoise is on the
verge of relaunching the company with a much more
powerful brand. By the end of the quarter, armed with $31
million in venture financing from Invesco and Idealabs!
among other investors, the company will change its name
to emusic.com and unveil a marketing campaign designed
to promote this new catchier brand.
But investing in GoodNoise is far from a riskless
proposition. To begin with, GoodNoise is a newborn
company with paltry revenue and rapidly increasing costs.
In its most recent quarter ended Dec. 31, 1998,
GoodNoise reported a loss of $1.1 million, or 9 cents a
share, on revenue of $8,000. And GoodNoise will keep
burning through wads of cash to buy new content and
market its site.
In the meantime, a lot could change in the developing
industry as the major record labels grapple with the arrival
of downloadable music. But unlike MP3.com, the most
visible digital-music company in the press these days,
GoodNoise has quietly built its site without antagonizing
the record labels. And should a new format supplant MP3,
GoodNoise says it will adapt easily.
"At bottom, we are agnostic when it comes to what
platform to support," says Kohn. "If consumers choose a
format, we'll provide that format. Right now, consumers
have chosen MP3." |
