LAUNCH Media Strictly Hush Hush on Cash Infusion

Troubled online music broadcaster LAUNCH Media Inc. Tuesday said it had
scored a $2 million loan from a “major media” company,
but mum was the word on who that is.

LAUNCH spokesperson Charlene English adamantly refused to reveal the source
to and would not comment on why this financing “replaces
the secured convertible note financing that the company had previously
announced,” which would have been to the tune of $5 million.

That funding, which the company said would keep it afloat and carry it to
profitability by 3Q, was announced May 14 and came concurrently with the
news that its net revenues for the first quarter of this year clocked in at
$3.8 million, compared to last years results of revenues of $6.4 million for
the same period.

And that was no doubt part of the reason the company pink-slipped 60 of its
workers, consolidated its Santa Monica operations into one facility and
killed its European expansion plans. LAUNCH currently operates with 175

Could the mystery financier be one of the Big 5? Jupiter Media Metrix Associate Analyst Dannielle Romano told that it’s highly possible. But
this possibility is made all the more intriguing because units of Vivendi
Universal SA, Sony Corp., and EMI Group Plc — the world’s three largest
music companies — recently put LAUNCH in its cross-hairs with a copyright
infringement lawsuit.

But history dictates that you can’t eliminate any of them from contention; recently paid out $130 million in lawsuits to many of the same
labels that are targeting LAUNCH and they owed the money for a successful
judgment of — surprise — copyright infringement. And remember,
itself was acquired by Vivendi May 21.

Bloomberg News reported May 24 that 10 record labels filed the suit,
which targets LAUNCH’s Launchcast service, which lets music lovers customize
the tunes they want to hear. The suit seeks damages of as much as $150,000
per infringement.
The thrust behind the suit is that those who Webcast music content need
approval to customize music.

A search on LAUNCH’s Web site Tuesday yielded the names of three analysts who offer coverage of LAUNCH: Chase H & Q’s Paul Noglows, WR Hambrecht’s Bill Lennan and Raymond James & Associates’ Phil Leigh; but strangely, no one seemed to know who LAUNCH’s new financier is. Noglows could not be reached as of press time while Lennan said he no longer covered the company. So, too, did Leigh, and while he would not hazard a guess as to who the money-lending entity could be, he speculated that perhaps the funding replacement had something to do with the lawsuit, which he said could not come along at a worse time for the company.

When asked about this suggestion, LAUNCH’s English said “we do not comment on speculation.”

Romano told that she, too, has heard some buzz that the lawsuit may be a strategic move by the record labels to force LAUNCH’s hand because they want to launch services comparable to Launchcast.

Romano called the lawsuit unfortunate and said she likes the destination, the Launchcast service, and was really impressed by the LAUNCH brand. She is also curious about the mystery financier.

Still, although LAUNCH said it is reducing its full-year revenue estimate to between
$32 million and $34 million, down from a previously estimated $45 million,
the company has enjoyed a consistently expanding registered user base, which
grew to 6.4 million by March 31. This is up from 5.6 million as of December
31, 2000.

It would be foolish to rule out possible acquisitions, too. After all, when
Yahoo!, Real Networks and members of the Big 5 announced their intentions to
roll the Duet and MusicNet subscriptions services in March and April,
Vivendi’s Universal Music made clear its intentions to scoop up
Inc. Universal paid $18.1 million for 31.8 million shares, or 74 percent of
Redwood City, California- based as of May 18. Under a previous
agreement, the record label needs to acquire 80 percent of outstanding
shares from a tender offer and 10 percent directly from to allow
a “short-form” merger that doesn’t require shareholder approval.

When one sifts through Vivendi’s recent music-oriented acquisitions of and, one has to wonder: Will it extend its hungry maw to
other such firms? Moreover, will RealNetworks and its MusicNet partners of AOL Time Warner Inc., Bertelsmann AG and EMI
Group plc. will pursue similar business agendas to battle the pending Duet?

Jupiter’s Romano agreed that these are strong possibilities. The answers to these questions remain to be seen.

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