NOT selling RNWK now or later, Pru. Promise! Plus, Seymour on MP3:
Running behind, but will catch up. Frankly, RNWK doesn't need my "help." Let's just get a COO in there and paper the Third World with RealPlayer, that's all...
Not only not selling, but will buy on weakness. Amazing how people remain skittish about MSFT potentially damaging RNWK. C'mon folks, not gonna happen! If MSFT's successful, will help RNWK all the more. Need to push primary demand. 60mm Players and 1mm Jukes just scratching the surface.
From "TheStreet.com" (free sample!) and industry leading light, Jim Seymour, bullish positioning of RNWK (a two-part piece, both below):
BAM
***
Juking Around With MP3
By Jim Seymour
Special to TheStreet.com
5/11/99 4:14 PM ET
URL: thestreet.com
Editor's Note: The MP3 phenomenon promises to change the music business forever and to create a new round of e-commerce fortunes. Jim Seymour, TheStreet.com's technology expert and a longtime professional musician, explores the curious world of downloaded music. Today, he takes a look at the technology, the worries and the players in this burgeoning industry. Tomorrow, Jim will point out hot prospects for investors among the companies leading this revolution and explore how you can sample MP3 yourself.
The revolution in the digital-music world gets stranger and scarier, at least for some recorded-music vendors, almost every day. It began two years ago with MP3, a shot across the bow of an industry that's as much out of touch with technology today as any other I know.
The digital era is going to change the music business profoundly, and yet many of the principal players, blinded by fear and frozen by uncertainty like deer caught in headlights, still just don't get it. They're living in the 1970s, and their retreat from reality is making their problems much worse.
In case you've been on Mars for the past couple of years, here's the necessary background. The audio portion of the digitally-encoded-movies MPEG-1 spec is called MP3, for "Motion Picture Experts Group, Layer 3." As an audio-only file format, it was further developed by Germany's Fraunhofer Institute and France's Thomson Multimedia. MP3 compresses audio files by a factor of about 10 times, down to about one megabyte per minute of music with near-CD quality. It's easy to transfer existing digital audio recordings, such as CDs, to MP3 files saved to your PC's hard disk, from which they can be played via the often very-high-fidelity sound systems installed in many PCs today or piped out to separate, "real" stereo systems. You also can post those files on a Web site so that anyone who knows where to look can download them.
MP3 buffs have been transferring to Web servers thousands and thousands of current and popular older CDs, so that with a little searching, you can find almost any recording you want as a downloadable file on the Web. How big a deal is this? Search on AltaVista.com for MP3, and you'll find 2,470,910 items. (Actually, that was Monday; the number's inevitably higher today.)
Artists such as Tom Petty, the Beastie Boys and David Bowie have released songs in MP3 format on the Web. The rap group Public Enemy says it's going to release its entire next CD on the Web in MP3. You can already buy MP3 songs by Louis Armstrong, Patsy Cline and other name-brand artists of earlier days.
This isn't a tiny, fringe thing. This isn't a long shot. This isn't Kansas anymore, Toto.
Needless to say, this scares the daylights out of the record companies and the performance-rights licensing entities, such as BMI and Ascap. You and I will stop going to Amazon.com (AMZN:Nasdaq) or Tower Records to buy new CDs, they're convinced; we'll just hunt down MP3 versions of the new albums on the Web, download 'em, then sit back to enjoy the tunes.
Want to take a few tunes with you when you go cycling or commute to work? Pick up a $150 Diamond Multimedia (DIMD:Nasdaq) Rio, a cigarette-pack-sized portable MP3 player much like a Sony Walkman or Discman, download your faves into it, and you've got MP3 Hits The Road, Jack. In your pocket. For free.
Maybe even worse, goes the recording industry's thinking, since most pop music CDs are filled these days with a lot of ... well, filler ... you won't be buying the nine songs you don't care about on a CD, only the two or three you do want.
Revenue, either way, to the record store, record company, performer, songwriter? Zilch. So they're scared. Big-time.
Know what? They're absolutely right. Many of today's recorded-music buyers will slow their purchases of CDs, instead in effect pirating MP3 files of the music they want via the Web. But by no means all of them will. The CD has years ahead of it as an important music-distribution medium. And not all of us want to be pirates; we're happy to buy music, not steal it, if given a chance.
But downloaded music is already a sizable endeavor, and it's about to get much, much bigger.
Groping Toward Legitimacy
It's easy to understand the knee-jerk responses of the music business. The Recording Industry Association of America tried unsuccessfully to enjoin Diamond from selling the Rio. The performance-licensing groups have been churning out press releases, and the major labels have been working furiously behind the scenes to come up with "secure digital-music" systems -- in other words, download protocols that will let them sell you digital music files over the Web only after you've paid for them, without worrying that you'll then be able to copy and redistribute them.
In other words, they want to kill MP3. Big surprise.
I've watched this with some glee because it's a lot like closing the barn door after the horse is out. Or better, calling the fire department a month after the barn burned down.
MP3 is so firmly established today that it's very unlikely even the most powerful alternative technology -- pushed by the strongest possible industry alliance, united behind the most robust non-MP3/no-copying scheme -- can kill it any time in the foreseeable future.
That hasn't stopped companies all over the lot from trying to develop a secure-download system. If anyone succeeds in producing a truly pick-proof digital lock, they stand to make a mint. But remember all the frenzy over antisoftware-copying schemes a decade ago? Efforts to copy-protect software were eventually abandoned because they proved so relentlessly burdensome for legitimate users -- the paying customers who were coughing up $495 a copy for Lotus 1-2-3 -- and also because about a month after every new copy-protection scheme was announced, a hacker somewhere defeated it. Today, in the Web era, those anticopy-protection hacks can be distributed worldwide in just seconds, so the window of protection for any method today is likely to be very short.
Still, lots of companies are trying. Microsoft (MSFT:Nasdaq) is building secure-music-download code, called Windows Media 4, and claims to compress music into half the space required for an MP3 file into its products -- though it has yet to sign a single major record company to use its system. RealNetworks (RNWK:Nasdaq) supports both MP3 and its own RealMedia file formats in its sensational new RealJukebox application. The Secure Digital Music Initiative, an alliance of more than 110 record and music producers, hopes to develop and use its own scheme -- or bless an independent one. Sony (SNE:NYSE ADR) says it has a killer secure-download system almost ready. Even AT&T (T:NYSE), which I am long -- AT&T, for God's sake?!? That famous backer of rock-and-rollers? -- has a subsidiary, a2b Music, which is trying to peddle its own encoding-decoding system.
And as Herb Greenberg pointed out last Wednesday, among the many long shots in this game is his old favorite CustomTracks (CUST:Nasdaq). Last week, CustomTracks named Douglas Kramp executive vice president of strategic business development, and he then proceeded to say that CustomTracks' "new Digital Signature technology, in my opinion, is the most exciting development on the Internet since the browser." Uh-huh.
You get the idea: This is turning into a feeding frenzy, full of unlikely boasts and self-serving PR.
Desperately Seeking a Standard
As much as I think MP3 can't and won't be dislodged anytime soon, it's also clear that this situation won't continue forever. But a solution is complicated and has at least two parts:
First, CD publishers have to find a way to change the CD production system itself, so new CDs can't easily be digitally copied. This is a massive task with potential for all sorts of incompatibilities with existing CD players. But unless something is done, no matter what the record companies do about secure downloads, anyone will still be able to buy a CD and almost effortlessly record its tracks onto MP3 files. And remember, this is only an answer for future recordings -- it doesn't help with the hundreds of thousands of CD titles already in existence. Likelihood of a quick, enduring fix: Essentially zero.
Second, the recorded-music industry needs to coalesce behind a single, nearly bulletproof standard to allow copy-protected online sales. Tough for the reasons outlined above. Worse, the real vice of MP3 for the music business is that it's so addictive. Once you've tasted the ease of downloading and saving MP3 copies of songs you like on your hard disk, you find it hard to take seriously the need to buy those $15 Frisbees, the need to buy a bunch of third-rate filler material to get the hit tunes you want and the whole hassle of shuttling CDs in and out of whatever you play them in. Likelihood of a quick, enduring fix: Quick, yes; enduring, maybe. Not soon.
As you can see, I'm a pessimist that the record companies' problems will be solved in any substantial way very soon. But call me an optimist from the consumer's point of view -- at least, from the short-term perspective. Longer term, of course, if recording artists, music publishers, songwriters and record companies can't make money, we'll see far fewer new albums and much less new-artist development.
Music isn't going away -- and you can make a good case that the continuing success of MP3 could actually lead to a new flowering of recorded music by putting control of recordings in the hands of the artists themselves -- but this extended period of transition is going to be rough.
Tomorrow: Spotting investments in the emerging downloadable music market, and exploring for yourself what the MP3 revolution is all about.
***
Walking Through the MP3 Minefield
By Jim Seymour
Special to TheStreet.com
5/12/99 12:14 PM ET
URL: thestreet.com
Editor's note: The MP3 phenomenon promises to change the music business forever and to create a new round of e-commerce fortunes. Jim Seymour, TheStreet.com's technology expert and a longtime professional musician, explores the curious world of downloaded music. Yesterday, Jim looked at the technology, the worries and the players. Today, he spots some likely hot prospects for investors among the companies leading this revolution and explores how you can sample MP3 yourself.
Sure, it's hot, and sure, there are fortunes to be made in this brave new digital-downloads world of recorded music on the Web. So how does an investor play the MP3 opportunity? Carefully, and with some of the same worries that afflict the record companies:
The big music companies are unquestionably going to get hurt by MP3, at least for the next couple of years, as the music industry gropes toward a workable secure-download standard. Most are significant but hardly dominant contributors of profits to the media-holding companies that own them, such as Time Warner (TWX:NYSE), Sony (SNE:NYSE ADR) and Bertelsmann. So while you should keep in mind the impact of MP3 when you consider those stocks, other lines of business outweigh MP3 issues in their likely profitability and movement.
Implementers of MP3 and, soon enough, of Secure Music Download Initiative-compliant products will offer rich investment opportunities. The big gains are still some distance away though, and this remains a crapshoot: Which company's technology will win? RealNetworks (RNWK:Nasdaq) is an obvious play right now, for example, coming off the buzz from its announcement of RealJukebox at its annual conference last week. But it's wobbling now around 200 and has a 52-week range of 15 3/4 to 263 3/4, which many investors will see as a big caution flag. I'm a fan of RealNetworks, long term; I see its RealJukebox rollout as a major change of direction for the company, broadening its revenue opportunities and giving it a substance and security that, until now, have been in some question. I can't say RealNetworks is finally out from under the cloud of possible devastation by Microsoft (MSFT:Nasdaq), but it's very nearly so.
Among other players, Liquid Audio is promising, and with an IPO just announced, it offers an opportunity to get into one of the very few pure-play downloaded-music companies relatively early. The company has done deals with Dreamworks SKG, Capitol Records and a few artists, though those deals are for evaluation-level projects, not ongoing, full-line commitments. Liquid Audio uses the Advanced Audio Codec, or AAC, from Dolby Laboratories, which may give it a technical edge. And although it built its name and business around its proprietary format, it's now saying it'll support MP3 and Microsoft's new Windows Media 4.0 formats as well
CustomTracks (CUST:Nasdaq) may also be a winner, especially now that it has dropped its former focus on building and selling custom CDs full of customer-specified tunes and is working on download systems.
The .coms devoted to MP3 are flourishing, but very few of the tens of thousands of sites offering downloadable music are viable business propositions. Two, however, offer appealing near-term investment opportunities.
GoodNoise (GDNO:OTC BB), which backed into public ownership by merging with an OTC shell and is presently in the process of moving to a Nasdaq listing, has the rights to sell songs from the likes of Louis Armstrong and Frank Zappa. The stock has almost tripled this year and seems likely to head higher, perhaps much higher, when it's listed on the Nasdaq and as it secures more contracts with record companies. Today, GoodNoise has only Rykodisc under contract, and additions to that list are likely to be distinctly second- and third-tier indie labels for now. But GoodNoise is in the best position of any .com in the industry to move into the big leagues over the next couple of years. (I have a small indirect interest in GoodNoise, which recently received venture capital funds from the privately held Internet incubator, idealab!, in which I have a small holding.)
The other good bet is MP3.com, a hip, promotion-minded, privately owned company that has so far mainly been a mechanism for bringing previously unheard-of bands to the public eye -- uhh, ear. But consider a measure of MP3.com's determination to move into the mainstream of today's pop music: MP3.com announced in late April that it would be a co-sponsor of this summer's high-profile, 26-city tour by Alanis Morissette and Tori Amos. Many speculated that this meant Morissette and Amos would release the tour album or at least one new song in the MP3 format over MP3.com. Alas and alack, Alanis says it ain't so: She'll stick with her usual label, Maverick, and the CD format, though she will release one live single, but on a new site Maverick is developing. Ouch. Contrary to stories heard earlier this year that an MP3.com IPO would be along late in 1999, I think you should look for an MP3.com IPO sometime in the next quarter.
For now, MP3 as a business seems likely to continue to struggle, though MP3 as a format is clearly dominant. If and when an SMDI-backed (or imposed?) standard becomes widely available, the real explosion in downloaded music will begin.
Some companies, such as Universal Music Group, jointly owned by Seagram (VO:NYSE), AT&T (T:NYSE), Bertelsmann's BMG Entertainment and Matsushita Electric Industrial, have decided not to wait, believing they can go it on their own. Universal Music announced last week that it wouldn't wait for an SMDI-based industry standard, but was going ahead with a system under development by InterTrust, and expected to be selling its labels' products online before the end of the year.
Revolutions, someone observed, are always messy, and this one won't be different. It has already begun to change the relationships between artists and recording companies. It's also spurred frantic meetings and midnight alliances among the executives of those companies and brought to public attention a number of bands and solo artists who would never have been heard from in years past.
Digging In for Yourself
If you're interested in the MP3 tumult as a music fan, an investor or just an interested bystander, I'll tell you right now that this is one revolution you won't begin to understand without dipping your toe into the water. Fortunately, that's free or nearly free and incredibly easy.
First, download the beta of RealJukebox at www.real.com. Install it, stick a CD in your computer, and let it transfer the songs on that CD to your PC's hard disk. Play a few cuts. You'll be amazed at how quick and easy this is and at the overall fit and finish of what is, remember, still only a beta release of the RealJukebox program. (The final version, coming soon, won't be free but will be cheap and will transfer music with even higher audio quality, so don't start transferring your entire CD library yet.) This is serious software, and it's carrying one of the big red flags in this revolution.
Second, go to both www.GoodNoise.com and www.MP3.com, poke around, and download a tune or two. On GoodNoise, you can buy for 99 cents a download of one of the great cuts on jazz pianist Eddie Green's new album, This One's for You -- it's plugged on the home page right now. Or buy the whole album for just $8 -- half the price, please note, of most new CDs. On MP3.com, try something else, maybe one of the cool kids' songs, for free. Again, listen to your downloads. You'll quickly see why MP3 is causing such an upheaval.
(You'll also see why broadband service is so important. With most song files running about 2MB, and some as large as 5 MB, downloads via dial-up modems are hopelessly long. With 800 Mbs cable modems, 500 Mbs or better ADSL connections or a 1.5 Mbs T-1 line, most take just a minute or two. Count downloadable music as yet another corner of e-commerce to be fundamentally enabled by the arrival of fast Web access methods.)
Third, use a couple of the popular search engines-cum-portals to look for MP3 music. On Lycos (LCOS:Nasdaq), try the MP3 category listed near the top of the page: Lycos is into supporting MP3 buffs in a big way and has found and rated for reliability many thousands of MP3 download sites. (Unfortunately, many of those sites are unreliable, often down, slow or otherwise munged. Watch for three- and four-star sites. And ignore the "ration" sites (red marks) in the lists that come up onscreen: These require you to contribute to the gene pool, so to speak, by uploading some tunes yourself, before you're entitled to download any of theirs. Frankly, the raggedness and unevenness of the experience of searching for and downloading files this way will show just how ripe the downloadable-music business is for the organization and consolidation of a GoodNoise or MP3.com.
That little tour, which shouldn't take more than an hour, will give you something of the flavor and the fervor of the MP3 movement. You won't be an expert, but you'll be way ahead of most of the people who talk a good game about the pluses and minuses of MP3 -- including an amazing number of record-company executives -- but have never done this themselves.
A Look Ahead
A popular analogy holds that the impact of MP3 will be much like the impact of VHS videocassette recorders two decades ago: The industry will fear its arrival, scream and complain -- then notice, a few years later, that the once-feared device has, as with VCRs, tripled or quadrupled its markets and revenues.
I think that analogy is inexact and deceptive. It was never easy to copy and freely redistribute (read: pirate) movies on videocassettes, for example, and in an analog world, copies were never nearly as good as the original -- but the general drift is right.
I have no idea how the world of recorded music will look 20 years from now, but I'm positive that downloadable digital music will have been a force for the good and will have led to positive changes beyond today's imaginings for the "record" business.
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Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, Seymour was long AT&T and GoodNoise, although positions can change at any time. Seymour does not write about companies that are consulting clients of Seymour Group, or have been in recent years. While Seymour cannot provide investment advice or recommendations, he invites your feedback at jseymour@thestreet.com.
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