MP3.com looks to be next MTV

It depends on who you ask. Michael Robertson, chief executive of MP3.com, seems to think so--but some analysts and other observers say the jury is still out.

Robertson told an audience of Web developers and aspiring musicians at the New York Music and Internet Expo that MP3.com will revolutionize the recording industry the way MTV did in the 1980s--and the floodgates are just beginning to open.

"MP3.com is the next MTV, only it's going to grow way bigger than MTV," Robertson said during his keynote address at the expo. "And it won't be too long before we have millions of music lovers come to sites like MP3.com every day."

Robertson added, "If you rewind the clock back to the early days of MTV, how many people thought MTV was going to make stars like A Flock of Seagulls? Nobody. The record industry pooh-poohed it and said, 'Ah, you're crazy.'"

But Forrester Research senior analyst Mark Hardie pointed out: "We are seeing a lot of rhetoric [about MP3 vs. the music business], but the rhetoric is confusing because no one's comparing apples to apples. [Web music companies] are comparing apples to oranges and saying the oranges are a better fruit.

"Ask any garage band right now, 'Would you trade a contract with Sony for 50 percent of all downloads with MP3.com?' They'd pick Sony," he added, noting that Internet companies still can't match the recording industry's ability to market, promote, and distribute an artist's work to a widespread mainstream audience by putting a lot of funds up front. This still remains its key advantage over companies like MP3.com and GoodNoise, an online-only record company that offers MP3 files of its artists for a fee.

Jupiter Communications analyst Mark Mooradian said the Internet will be a great tool for unknown bands to make their imprint. But the Internet cannot make a superstar--that is still the domain of record companies.

"Can MP3 help you as a distribution tool? Yes. Is it a great marketing device? Yes," Mooradian said. "[But] the format in itself is not going to make a star. The quality has to be there. There's a plethora of bad MP3 bands."

Robertson has emerged as one of the main torchbearers of the MP3 format and the Net's growing grassroots music business after MP3.com secured an $11 million investment by venture firm Sequoia Capital and Idealab in January.

The MP3 (MPEG 1, Audio Layer 3) format essentially compresses audio into compact files that can be stored on a computer hard drive and played back. MP3's popularity with early adopters--especially college students, who traditionally are big music consumers--makes it the favorite so far among download formats, but it faces competition from more secure and technically sophisticated technologies such as AT&T Labs' a2b Music and Liquid Audio. Still, many consider MP3 a de facto standard for audio compression and delivery technology.

However, music industry lobbying group the Recording Industry Association of America (RIAA) has taken legal steps to curb the widespread dissemination of pirated music files, which often are distributed in the MP3 format. In October 1998, the RIAA filed a lawsuit against Diamond Multimedia, maker of the Rio portable MP3 playback device. RIAA attorneys said the device promotes the illegal distribution of copyrighted songs and could prevent copyright holders from collecting fees that are due them.

Ironically, Robertson's step into the limelight was helped significantly by the RIAA lawsuit against Diamond, Hardie said. Because of the lawsuit, MP3 gained widespread exposure and caused the recording industry to move toward developing a standard for secure delivery of music online.

"He galvanized the industry, but in tandem with the Diamond lawsuit," Hardie said of Robertson.

Hardie added that the lawsuit was also a major boost for MP3.com.

"Previous to the Diamond lawsuit, they had trickle traffic," Hardie noted.

But for Robertson, the RIAA's actions are a mere roadblock to gutting the legal, economic, and commercial structure of the recording establishment.

"When you look at record labels, they were dropping artists that were selling 200,000 CDs or less," Robertson told a crowd of aspiring musicians mixed with Web developers at the expo. "That same artist can move to the Internet, sell 25,000 CDs in a year, make $5 a CD, and make 125 grand.

"The record label model today only works with the multiplatinum and the platinum sellers," he added. "And I think that's really the beauty of the Internet, is that it has that potential to work" for artists who sell fewer CDs.

While Hardie agreed that record labels are more geared toward creating superstars instead of supporting smaller acts, he warned that much of the hype behind the Internet's benefits for artists should be examined more closely.