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An IPO Set To Music

If you were choosing the soundtrack for IPO Musicmaker.com, music from a disaster movie might be most appropriate.

It's not that Musicmaker.com doesn't have a great idea. Allowing online shoppers to custom-create their own CDs, which are shipped right to their homes or even downloaded, clearly is an ideal marriage of Internet and digital recording technologies.

The Reston, Va.-based company filed an IPO last Friday, hoping to raise $30 million by selling public stock on the Nasdaq exchange under the symbol "MMKR."

Unfortunately for Musicmaker.com and several of its existing competitors, the catalog of selections they now offer is severely restricted to oldies, alternative music and other niche and fringe categories.

That's because major music companies such as EMI, Warner and Sony own the copyrights to virtually all of today's major recording artists, as well as the vast majority of older performers whose catalogs still do big business.

And there's a better chance that The Beatles will reform with John Lennon before the majors allow upstart Web companies a penny of their lucrative business -- not if they can do the same thing themselves. Which eventually they will.

This reduces Musicmaker.com, formed in 1996, to cutting deals with "independent" (read: low-revenue) labels. Granted, there are some well-known names in Musicmaker.com's stable, including The Beach Boys, Jerry Lee Lewis, Little Richard and The Kinks. Great news if this were 1965, but none of those performers are exactly burning up the charts these days.

Here's something that will put this investment opportunity, as it now stands, in perspective: Seventeen of the 20 most-ordered tracks by Musicmaker.com members are songs by Miles Davis. And while the jazz legend is a seminal figure in music history, try building a business around him today.

Musicmaker.com's revenues for 1998 were $74,028 (that's not a typo; we're talking 74 thousand) against a net loss of $4.7 million. Go Miles!

Company executives, whose ranks include music industry and high-tech veterans, are not naive. They know that Musicmaker.com's only real chance is to use the $30 million they hope to generate from an IPO to buy distribution rights for big sellers such as Mariah Carey, Jewel and the Dave Matthews Band.

But given the music industry's short-sightedness, tight-fistedness and knee-jerk response to anything it remotely perceives as a threat, Musicmaker.com's gamble seems like a big risk for investors.