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THE DAY AHEAD: MP3.com may be more than a one-hit wonder

All folks have been hearing for weeks is MP3.com this and MP3.com that. Well, the MP3 IPO finally arrives Wednesday and this concept company is really nothing more than a cool name. Fortunately, in the music world that's all you really need to become a star.

What's in a name? Probably at least $1 billion in market capitalization. MP3 (proposed ticker: MPPP), named after a popular music downloading technology, is going places.

Note: Judging the whole future of a company based on a name isn't The Day Ahead's style. We normally worry about silly little things like financials, investment risks and the like. But recent music history indicates that a cool name can lead to big things. Look at how many music acts have been at least one-hit wonders largely because of a name. Remember Oingo Boingo, Wang Chung, Milli Vanilli or even the Barenaked Ladies? Shame those bands couldn't issue stock when they were hot.



MP3.com: One-hit wonder?



On the Internet a cool name can get you started. In the music business a cool name could be the theme for a whole business model. Put 'em together and you have one helluva IPO, tons of capital and perhaps a real company. MP3 also has that renegade image, thumbing its nose at the fumbling music industry, which is so concerned with piracy it will lose its standing in the market. The whole music piracy controversy has been great advertising for MP3.

Now the figures

With that backdrop, you can look at the other figures behind the MP3 IPO, underwritten by CS First Boston, Hambrecht & Quist and BancBoston Robertson Stephens. For starters, demand is huge. The offering was bumped up from 9 million shares to 12.3 million. And the price range was bumped up from $9 to $11 to $16 to $18.

Of the 12.3 million shares, MP3 is offering about 3.3 million to Arkaro S.A., a subsidiary of Groupe Arnault, a French company. In July Groupe Arnault agreed to buy $150 million of advertising, promotion and marketing services from MP3 over the next three years, the filing said.

MP3 also counts Cox Communications, which will own 9.4 percent of the company, as a big investor. MP3 has more than 100,000 songs from over 18,000 artists and allows consumers to search, sample and download music free.

That strategy doesn't make the music industry happy, but MP3 is using the attention to grow other revenue streams. About 89 percent of MP3's revenue comes from advertising, but the company also gets sales from CD sales and sponsors of CD samplers that feature collections of music from artists that post music on the MP3 site.

MP3 could very well revolutionize music distribution because it can cut distribution costs, enable artists to reach a large audience without a record contract, and make life easier for music fans. But can it make money? Probably not, but MP3 sure can grow.

From March 1998 to December 1998, the life of the company, revenue was $1.16 million. Losses for 1998 were $357,500. For the first quarter, MP3 reported sales of $665,785 and a loss of $1.4 million.

MP3's employees increased from eight on December 31, 1998, to 142 on June 30. In June, MP3 added over 125 artists and 660 new songs on average each day. MP3 also served 57 million pageviews in June with users downloading 10 million songs and conducting over 5.5 million music searches.

The dreaded risks

Of course there are risks that could make MP3 a one-hit wonder and an online footnote:

  • Risk 1: MP3 isn't backed by the music industry and doesn't have big-name artists. "We are attempting to capitalize on a talent pool of artists not currently served by the traditional recording industry," the company said. "We cannot assure you that consumers will continue to be interested in listening to or purchasing music from these artists."

  • Risk 2: MP3 technology may not be the format of the future. What if you named a company after a hot technology and that technology faded? Imagine Microsoft today if it had named itself DOS Inc.

  • Risk 3: Regulation. The government, in an effort to curb music piracy, could alter business plans for companies like MP3.

    But no one will worry about those risks because MP3 has the name. Sometimes that's all you need.