MP3.com Shares Stock For a Song
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In a goodwill gesture to the no-name musicians who made it famous, pioneering digital download music site MP3.com, Inc. announced Wednesday it is letting artists in on its much anticipated IPO.
MP3.com said it is reserving up to 1.8 million shares of its common stock at the initial public offering price to eligible registered artists, as well as to customers, consultants, and business associates.
The directed shares program is being administered by Charles Schwab & Co. The offering's lead underwriter is Credit Suisse First Boston.
Expected to price between $9 and $11 per share when it begins trading around July 19, the MP3.com shares could enable artists to reap a tidy profit if the stock pops on opening day the way many Internet IPOs have.
After the IPO, founder and CEO Michael Robertson will hold 41 percent of the company's stock, making him an instant millionaire. But most musicians who post their music at the MP3.com site never earn a penny for their troubles but instead use the site for promotion or just to share their work with music fans.
MP3.com artist Denis Smirnov, a graduate student in Philadelphia who has a one-person electronic band called Magnet, said the stock plan could help to stifle some of the grumbling from artists who have wondered whether MP3.com was getting wealthy off their labors.
"This is psychologically a very good move. I appreciate anything they do to make an artist feel like he's really a part of mp3.com," said Smirnov.
Smirnov and other MP3.com artists posting to its message boards Wednesday were nonetheless cautious about investing in the company at any price. Some expressed uncertainty about MP3.com's business model, which relies heavily on advertising. According to its prospectus, 84 percent of MP3.com's $665,785 in revenue last quarter came from online ads.
That concern is shared by many Internet analysts. John Robb of Gomez Advisors predicts the MP3.com IPO will be "very successful," but going forward he said the company needs to create new means to generate a revenue stream from site visitors -- revenue that it can pass along to artists.
"The advertising model isn't working for most sites. They need to get people on the credit-card treadmill of paying into the service. That's the only way to compensate bands and move to actually producing a top-tier of bands and promoting them within the system," said Robb.
One revenue possibility, says Robb, is selling subscriptions to faster download rates. Another is broadening the site's merchandising strategy; for example, enabling visitors to create customized CDs, rather than having to buy the pre-made ones that MP3.com currently sells.
While MP3.com cites "increased competition" among the risk factors affecting its success, Robb predicts the frenzy of activity in the downloadable music market will ultimately work to the advantage of MP3.com investors.
"Everyone is talking about doing a music site of their own. I assume somebody in the offline music or portal space will scoop them up at some point, and that's what investors are going to be betting on."