Net Music IPO Issues.....
Carl,
Excerpt from this weeks Barron's. Enjoy!
On May 15 MP3.com, the San Diego-based scourge of the record industry, filed a much-anticipated stock offering. The deal is bound to generate almost as much buzz in the stock market as in the record industry. The initial registration, a proposed offering of up to $115 million, could potentially produce a company with a capitalization of close to $804 million.
An impressive list of backers supports the offering. The company lost $1,478,287 on revenues of $665,785 in the first three months ended March 31, 1999. Michael Robertson, formerly chief executive of software company Media Minds Inc.; Sequoia Partners, which sponsored eBay, and Theodore Waitt, chief executive of Gateway 2000, stand as the major shareholders.
Several key underwriters also lend distribution power, such as Credit Suisse First Boston, Hambrecht & Quist LLC, BankBoston Robertson Stephens and Charles Schwab & Co.
But some analysts doubt MP3.com's move from renegade to respectability will produce dividends. While its Website touts itself as "the ultimate source for FREE high-quality music," MP3.com admits that it has both an unproven and undercapitalized business plan heavily dependent upon elusive 'Net advertising, fee sales, and sustained consumer interest. Robertson has grown the company at a blinding pace to 75 full-time employees, and readily admits to potential problems in dealing with the growth in systems and staff needed to keep up with consumer demand.
"They've created a flea market that lacks filtering. This leaves the consumer to do the time-consuming filtering normally done by television, magazines and radio," says Mark Hardie, an analyst for Forrester Research. "There are other commercially viable secure technologies already developed by companies, which will certainly make things very tough for MP3.com. The firm's caught between being a portal for the MP3 world and some new form of record store."
And MP3's Website certainly looks like an open-air market, where consumers can browse 56,000 songs from over 11,000 artists. Just don't expect a bargain when it comes to the price of MP3.com shares. Those will go to the insider directors and early backers. Chairman Robertson and other directors control 86% of MP3.com's stock, issued at an average price of 35 cents a share.
But even for an upstart like MP3.com, the competition is mounting. Major companies have joined partnerships to offer music on the Internet, thereby increasing the pressure on MP3.com. This month, Microsoft and Sony announced that Sony would make its music downloadable from the Internet using Microsoft's multimedia software. Also Universal Music Group and BMG Entertainment have announced a joint venture to form an online music store.
Next comes other small startups, such as Liquid Audio, which submitted an offering May 5 that provides an equally risky, but somewhat more structured way to invest. The Redwood City, California-based company, run by Gerald W. Kearby, former chairman and co-founder of Integrated Media Systems, has combined forces with venture capitalists to build a secure platform to deliver music that can be custom "burnt" onto CDs at local music stores such as Tower Records. This leaves the artists free to create, syndicate and sell recorded music with copyright protections and arguably better reproduction quality than MP3. Still, for the first three months of 1999, Liquid Audio racked up $4.1 million in losses on just $531,000 in revenues.
Liquid Audio's prospects raise much the same warnings about the dangers of an unproven business plan, along with the risks of failing to develop a full and popular stable of artists. This distribution, handled by Lehman Brothers, BankBoston Robertson Stephens and U.S. Bancorp Piper Jaffray, covers only $60 million. Major shareholders include Ann Winblad of Hummer Winblad Venture Partners (19.8%), Intel (18.5%), Vulcan Ventures (7.3%) and Metromedia (7.2%). As with MP3.com, no expected offering price or date has been set for Liquid Audio. |
