Liquid Audio plans to go public

The company registered with the U.S. Securities and Exchange Commission and plans to trade under the symbol "LQID."

However, Liquid Audio did not disclose the price range or the number of shares to be offered at the suggestion of its investment bankers, chief financial officer Gary Iwatani told CNET News.com. "Those numbers will be dropped into the next filing," which is likely to be in about 30 days.

The company hopes to have its IPO sometime in late June or early July, Iwatani said.

Liquid Audio's plans for an IPO come at a time when companies targeting the downloadable music market face stiff competition in a crowded market of suppliers for a relatively small number of users--though analysts say the potential for the space is tremendous. All the players--which include a2b Music, Microsoft, and, as of this week, RealNetworks, among others--are aiming to have the download format that will become the standard for music downloads. Music downloading is also at the center of a controversial storm over copyright protection and piracy issues.

The recorded music industry, which generated about $38 billion in sales worldwide in 1997, represents one of the biggest opportunities for online digital distribution and commerce. With the growing popularity of music on the Internet, Forrester Research estimates that sales of recorded music through digital transmission will reach 7 percent of all recorded music sales in the United States by 2003.

Still, to eke out a profit from that burgeoning world, Liquid Audio has its work cut out for it.

According to its filing, the company posted a net loss of $8.5 million in 1998, up from $6.2 million for 1997. Total revenues, however, rose to $2.8 million in 1998 from $256,000.

"We did not start generating revenues until the second quarter of 1997," the company stated in its filing. "At the end of 1998, we began to place greater emphasis on our digital music delivery services.

"We are still in the early stages of development and have only a limited operating history," Liquid Audio added.

Liquid Audio noted that its accumulated deficit as of March 31, 1999, was approximately $20.2 million, with a net loss of about $4.1 million in the first quarter of 1999.

"We have not achieved profitability and, given the level of our planned operating and capital expenditures, we expect to continue to incur losses and negative cash flows through at least 2002," the company said.

The offering will be managed by Lehman Brothers, BancBoston Robertson Stephens, and U.S. Bancorp Piper Jaffray.

Liquid Audio is up against several technology giants that also have entered the fray to establish the standard for downloadable music on the Net. IBM and RealNetworks teamed up last month to create a universal way to send music over the Net. Microsoft recently released a beta version of its Windows Media Technologies 4.0, and AT&T unveiled the second version of its a2b music player.

These efforts are an alternative to the popular MP3 (MPEG 1, Audio Layer 3) format that has strong recognition in the online music world but also has raised the hackles of the recording industry because it offers no copy protection.

"I think that online music is going through an evaluation period," said Paul Bard, an analyst at Renaissance Capital IPO Fund. "Five major [record] labels comprise 80 percent of music content, but they are holding their content back till they are sure a download format will protect their copyrights."

In December, the Recording Industry Association of America announced the formation of the Secure Digital Music Initiative (SDMI), a consortium of record company and technology executives that is looking to develop specifications for secure music downloading that ostensibly could be part of any download technology.

SDMI is supported by many of the major players in the recording industry, including Bertelsmann's BMG Entertainment, EMI Recorded Music, Sony Music Entertainment, Seagram's Universal Music Group, and Time Warner's Warner Bros. and Warner Music Group.

Universal also entered the game this week, inking a deal with InterTrust Technologies to create a secure download format.

Liquid Audio's software products and services give artists, record companies, Web sites, and retailers the ability to create, syndicate, and sell recorded music with copy protection and copyright management, according the company's SEC filing.

Through the Liquid Music Network and its affiliate Web sites, consumers can preview and buy digital music and transfer the downloaded music to recordable compact discs. Some time later this year, consumers will be able to transfer music to other digital consumer devices.

"Our solution is based on an open architecture that is designed to support leading digital music formats, including MP3 and Dolby AC-3," the company wrote in its filing, noting that several record companies and artists have used its platform, including Capitol Records, Dreamworks Records, Bruce Hornsby, and Sarah McLachlan.