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Sony Deal Music To Launch Media's Ears

Launch Media's stock hasn't even started trading yet, but its price just went up.

The community-oriented music Web site just scored a major deal with Sony Music Entertainment (SME) that will allow it to offer members music videos from top acts such as Celine Dion, Lauryn Hill, Billy Joel and others.

Wait, there's more. Launch officials say Sony Music has agreed to buy about $1 million in the company's stock. Launch filed its IPO on Feb. 16, with hopes of raising $40.3 million. Lead underwriter is Hambrecht & Quist; the Nasdaq ticker symbol will be LAUN.

Whatever the price tag for the package - and neither company is offering specifics - these moves should significantly enhance Launch's value to prospective stockholders.

As noted in the Feb. 26 Midday Report on Musicmaker.com's IPO, it's critical for independent music-oriented Web sites to gain access to product from A-list artists whose material is copyrighted by industry giants such as EMI, Warner and Sony. Bottom line: If you're not offering the artists that sell, you're not going to attract an audience.

Launch targets the coveted 12- to 34-year-old age group of music fans, but also features music and content about performers who were around even before some parents of Generation Y members were born.

Besides free "streamed" videos, music news and artist interviews, Launch's site provides member reviews, recommendations and discussion - the kind of format that encourages repeat visits and appeals to advertisers, from who Launch derives about 60 percent of revenues.

Revenues grew from $1.4 million in 1996 to $3.1 million in 1997 and $5 million last year, while losses during those same years were $4.5 million, $6.7 million and $13.4 million, respectively.

The revenue growth rate for the Santa Monica, Calif.-based company is unimpressive, especially given the large sales and marketing expenditures last year, about $9 million, or 180 percent of sales. But that's what makes the Sony deal so significant - music videos and more news featuring top artists should translate into increased traffic and higher advertising revenue.

Launch has the right idea. It has put together a quality site, which has attracted about 1 million registered users through January. However, it is in an incredibly competitive market, and must battle for advertising dollars not only with online music retailers such as Amazon.com and CDNow, but MTV, Rolling Stone, Spin and other traditional media companies.

Pacts with music industry giants such as Sony will give Launch Media a fighting chance to improve its revenue growth rate and better leverage its sales and marketing expenditures.