View from the eye of the Net music storm

View from the eye of the Net music storm
By Beth Lipton
Staff Writer, CNET NEWS.COM

Michael Robertson looks for trends by scanning the bottom of lists of most-searched-for terms.

That's where he found MP3, and its burgeoning popularity led him to launch MP3.com 15 months ago. As can happen on the Net, during just that short period, the site has become the hub for news, information, and authorized downloads of music via MP3 (MPEG 1, Audio Layer 3), a format that is promising--or threatening, to some--to help bring about a shift in the music business' balance of power.

Although more secure and technologically sophisticated formats by heavy hitters such as AT&T Labs' a2b Music and veteran Liquid Audio are out there, they haven't caught on to the extent that MP3 has. The latter even showed signs of jumping on the MP3 bandwagon last month, announcing plans to incorporate Diamond Multimedia's Diamond Media Device Manager into its Liquid Music Player during the first half of 1999.

In a sense, MP3--which compresses audio files so they can be easily downloaded onto a PC hard drive--is a throwback to the "old days" of the Net (circa 1995), when information flowed freely and sharing was commonplace.

But "sharing" music files freely eventually became recognized for what it was--piracy--and the music industry, led by its powerful trade group, the Recording Industry Association of America, began to crack down hard on the MP3 community.

Many say MP3 got a bad rap--as the format of choice

among pirates, it became the mortal enemy of the music business. But the format itself is just a means to an end, and when it comes down to it, MP3's popularity has given it a momentum not yet enjoyed by other technologies. Anyone uncertain about the passion fans feel for MP3 and downloading music in general should spend an hour or two--or five--perusing the buzzing message boards on MP3.com.

Foes of the format lately have begun changing their tune. The Harry Fox Agency, the licensing arm of the National Music Publishers' Association, recently issued the first Digital Phonorecord Delivery License for delivering songs via MP3 to GoodNoise, an online record company, which also entered a licensing agreement with record label Rykodisc this month. At the same time, attempts to foil or otherwise slow the format's growth have continued.

Still, as the saying goes, all publicity is good, so as the debate surrounding MP3 has heated up, it's no surprise that MP3.com is enjoying a great deal of attention from all sides. Now the little renegade site that could--flush with an $11 million investment from high-profile venture firm Sequoia Capital and idealab--is staffing up, having hired away Robin Richards, former managing director of Tickets.com, to be MP3.com's president and chief operating officer; Doug Reece from industry bible Billboard magazine to be the site's senior editor; and copyright attorney Brad Biddle from Cooley Godward to be its vice president of business development and general counsel.

Robertson discussed the state of Net music, the plight of MP3, and plans for MP3.com in a recent interview with CNET News.com.

CNET News.com: When you first launched MP3.com, what did you think the future held for it? What were your expectations?
Robertson: One of the things that I enjoy doing is looking at charts about what sites are getting the most traffic. Everyone always looks at the top of the chart--I always look at the bottom because the bottom is where the opportunity is. You're not going to compete with Yahoo and Netscape at the top--it's the bottom where the opportunity is.

And so we started spotting sites that had "MP3" in them, and I said at the time, "Well, I don't know what MP3 is, but we should have a site about it because it looks like it's a trend." And something that I learned from Media Minds, which was a digital camera software company I founded that failed, was to listen for the customers and trends.

So we registered MP3.com and, at the time, we weren't really sure what we were going to do with it, but once I downloaded a song, I said, "Wow, this is impressive technology!" So at first we simply said, "Well, we'll create a new site. We'll aggregate news items related to MP3."

But unbeknownst to us there really wasn't much news on MP3 when we launched about 15 months ago, because it simply wasn't on anyone's radar screen. So we kind of were forced to actually write news stories ourselves. And that was the genesis for our news section, which still has a reasonably large following today and has, over time, taken on a real role as sort of an industry watchdog.

We started off with news, but fairly early on it became apparent that the content area was really where the opportunity was. And although 15 months ago the majority of [MP3] activity was the unauthorized, illegal songs, we thought that there would be a large number of artists and record labels that would really want to aggressively use MP3 to market and sell their music. And so that's what we did. We created a content area where artists and record labels could sign up to gain marketing and exposure and build their fan bases.

And from there we moved on to CD manufacturing and distribution. So what we learned was that a lot of artists wanted to sell CDs, but couldn't get over the start-up of having to order 500 CDs and getting them mastered and stuff like that. So we decided, "Hey, what if we offered a service for artists where any artist in the world could manufacture and distribute CDs for us?" And that is our DAM record label. And what's unique about that is that there are no start-up fees to artists, there are no monthly fees to the artist, it's a nonexclusive arrangement and we don't take ownership of their master recordings--unlike a traditional record label. But we give them half of the money of the sale price of the CD right off the top for every CD they sell. So it's a dramatically different program than an artist would encounter if they signed with a traditional record label.

What are your plans for the $11 million investment you got last month from Sequoia Capital and Idealab?
Well, first of all, we have enormous engineering challenges ahead of us. The last couple of days, as a matter of fact, we were signing up about a hundred bands a day, which is just an incredible growth. And then we've never really even advertised, either. So just the fact that we're adding almost two gigabytes of songs every day is a very big engineering challenge. Clearly, a lot of the money will be spent on the engineering infrastructure that we need to support that.

But the other piece is really helping artists in other areas, not just in the online world but helping artists in offline distribution as well. I mean, why shouldn't the most popular online artists get retail distribution or publishing deals or concert dates and things like that? We're going to be working hard on expanding the services that we can offer an artist that signs up with us.

What do you think the investment that you got says about MP3 as a whole?
I think what it illustrates is that the movement has an incredible momentum and real worldwide support, and that it is generating the kind of numbers now that are basically undeniable. I mean, when you look at our Web site, we have about 200,000 people coming to our Web site every day looking for music. That's a really big population, and those 200,000 are really avid music hounds. They really seek out music and buy lots of CDs and things like that.

An example would be the Diamond Multimedia Rio portable player. We had a chance to meet with one of the larger retailers for that product, and we asked them, "Hey, do you know what people are buying when they come into your store and they buy a Rio, what other things are in their shopping cart?" They did a report and what they found out was that the average person buying a Rio bought five CDs at the same time. That illustrates the point we're trying to make, which is that these people that are into digital music today--they're music nuts, they are the people that buy a lot of music and have a real passion for music. And I think that's one of the things about MP3.com--we've coalesced these people from all over the world that have a real affection for music.

NEXT: A different approach to the music industry

A different approach to the music industry

You've been criticized by some because you don't have a music business background. How would you respond to your critics?
They're right--I don't have a music background, and, in fact, until very recently, we had no music background in our company. But that's actually one of the things that makes us unique--we're approaching this business of music from a very different point. For example, some of the gentlemen that run record labels have told me, "Michael, you don't understand music because music is about owning intellectual property, where the record label actually owns the artist's music forever after they sign a contract." And so our approach has been just dramatically different. We haven't had sort of the legacy or the mindset of a traditional music industry expert. So at one level, that might be seen as a negative, but we actually think it's something that makes us truly unique when you look at the companies that are in the digital music space.

Who do you see as MP3.com's biggest competitors?
The online music space is not overly populated at the moment, but you have to look from an engineering perspective, Liquid Audio has to be considered in the mix. They've been at this game for four years and they've got great engineering. The Ultimate Band List and the Internet Underground Music Archive, those are two of the grandfathers in this space, with some name-recognition. And GoodNoise is out there, too. I think those are probably the big ones.

But when you're talking about a multibillion-dollar opportunity, I think there's room for a lot of players. So we're actually thankful that we have Liquid Audio and GoodNoise and UBL and IUMA and others in the space, because it's a very big space and there's a lot of work and a lot of evangelizing that needs to be done.

How would you characterize MP3.com's relationship with the major record labels?
I would say it's a cordial relationship. At MP3.com we have some ideas about the future and how we believe it will evolve. I hope we illustrate and demonstrate from our news and our actions that we're very keen on moving digital music forward. And I think the major record labels recognize that. A few weeks ago we were at a meeting in New York with several of the majors, as well as the RIAA [Recording Industry Association of America], sort of sharing some of our viewpoints and some of our observations and seeing if there are ways we can work together.

So I think that surely we have critics, but I think even our harshest critics have some respect for us as playing a role in the future evolution of digital music.

Having met with the major labels and the RIAA recently, how would you say their approach to you has changed over the last six months or so?
I would say they've warmed to digital music as a concept--they've really recognized that it's going to evolve much faster than they had predicted. And I think that they are eager for information. I think that's such a real credit to the RIAA and to the record labels--they're eager for information and I think MP3.com does have an enormous amount of information and expertise to bring to the mix. So I would say they're interested in an information exchange.

What's your view of the Secure Digital Music Initiative? Do you think the parameters and time frame are realistic?
I don't think the time frame is realistic at all. Listen, it's a committee--with any committee you come out with your timelines and then you have to double or triple those to have a shot at making them, simply because committees have a lot of varied interests. So I think the timeline is untenable.

As for the initiative, I find it rather interesting that in the SDMI press conferences they talked about an open standards sort of approach. The thing I find very interesting is that when you're talking about open standards, there's only one when it comes to music, and that's MP3. There are no other open standards.

So I think it's a bit of a challenge for them to reconcile the fact that an open standard lets everybody compete on generally equal footing, no matter how big or small. And I'm not sure that the major record labels want that. I think they would be more interested in a system where they have some sort of innate advantage.

They want to have something decided by this holiday season. Even if they were to attain that--which I don't think they will--but even if they did, it's not going to have any products that revolve around it for another six to nine months at the very minimum. So now you're talking well into 2000. And I think that digital music is moving much too quickly to wait around for the majors to decide on some sort of global initiative.

MP3 in particular is growing at a truly astounding rate. So I think it's going to be a challenge for them to have any real, credible competition for MP3.

How do you envision MP3 and your site being affected by the Web's evolution, such as broadband access and the recent rush for offline media brands to buy online properties?
You know, I think one of the things that we see looking forward is that the music industry is going to dramatically change. It's going to move away from the $16.99 CD that everyone knows and is very comfortable with today. I think that's one of the things that the Web is definitely going to do, and I think that in between here and there is a lot of learning.

What I see MP3.com doing is being out there on the forefront of learning and picking up that expertise about how you compel people to buy music online. What other sorts of revenue can artists and record labels generate online? How do you create a superstar online? How is it different or the same than the traditional radio promotional world? So those are all lessons that I think we're learning right now ahead of everyone else.

When it comes to the offline brands, I know we're not alone in thinking that this whole move to the Internet is really inevitable and it's inevitable for music more than so many other things because music can be entirely digitized and transported and purchased and downloaded and things like that. So we really see the migration to the Internet as being inevitable. Looking at it from that perspective, the offline brand and the offline corporations will want to have a piece of this online world in the future as well, so I think you're going to see more partnerships, just like you've been seeing. I think MTV and Sony Music and some of the other well-known music brands will move online in a big way. I'm predicting it will happen in the future--the near future.

Is MP3.com for sale? And if so, what kind of buyer would you want?
Well, I think every business in the world is for sale. It's just a matter of, is the price right? I think it would have to be a partner who is really committed to continuing to push the envelope and to making [the music industry] a better place for artists and for consumers. I think the real power of digital music is that it is making music better for consumers. If they want to do a ten-hour play list or copy their music to the Rio, which has no moving parts, and go snowboarding or if they want to make their own CDs--all those things are just great for the consumer. And so I think it's really important to remember that the consumer and the artist are moving forward. So hopefully, if someone were to acquire us, they would keep that as a real focus of their business.