IPO To Name Its Tune? The website domain was bought by company of the same name CEO Michael Robertson in 1997, doesn’t own any rights to the MP3 format, had 1998 sales of $1.2 million, ended the year with just 8 employees but has since grown that count to 141 as of June. But it will probably rocket in an IPO later this month regardless. On sheer buzz. Expectation of greatness.

Latest quarter revenues ending March 31 were $665,785 (that’s thousands) while net loss was $1.478 million.

But it hasn’t stopped this site from leveraging the interest in MP3 as a format and the college crowd freebie download phenom from boosting hype about the company’s prospects.

When the IPO goes, will have raised more than $200 million in gross IPO proceeds. European Web venture investor Group Arnault plans on buying 3.3 million shares at the offer price and also has an agreement option to negotiate with for its license rights to Europe and Asia.

Group Arnault also agreed to buy $150 million in ads, promo and marketing from over the next 3 years.

Ads accounted for 84% of net revenues in first quarter 1999 and 91% revenue last year.

The Group Arnault agreements, one for ads and the other an investment, means that in my mind essentially it will pay’s bills and give its balance sheet some bang starting in Q4 this year in return for equity.

Basically, it swaps its cash for equity which it can then sell back for cash at what probably or it hopes will be a substantial profit. In effect by the time its investment is realized the ad, promo and marketing deal will have been paid for by the sale of equity.

None of the above speaks to as an investment for anyone else. What I see as is a star search for mostly amateur musicians at this point. A database or jukebox for thousands of artists who the traditional record companies — in their limited abilities — can’t put on stage. is a digital star search without Ed McMahon or Dick Clark. An ad-supported radio for unknown bands, with a few notable deals with artists tired of the traditional record labels getting almost 100% of the sale of any CD.

But looks like a label in that it wants a piece of the action also. requires artists to sign up for a 50% of net revenue off compilation CDs.

A deal with Cox Media aims at allowing users to download music from affiliated radio stations.

On the plus side, Robertson has operated a very lean ship here with just $357k loss last year as he fished for a winner among his many Internet sites (, and others), before came up all cherries.

A majority of’s revenue is from advertising since few people want to pay for the mostly-unknown musicians that have uploaded their music to the site, often under the illusion that being on will offer them sales or exposure.

Over 18,000 artists have uploaded music, but when I asked CEO Michael Robertson how many of those had actually sold anything from he gave me what I thought was a muddy answer about not knowing the stats so far.

If 89% of revenue is from advertising that leaves 11% for other. Pretty clear in the S-1 filing.

So while boasts of adding 125 artists and 660 new songs daily what real value does that represent? There is little monetizing of that experience other than ad banner displays, storing these unknown artists in the servers in the hopes that they can find their way to fame and fortune, how? doesn’t know.

How long before CDNOW or the major search engines move in? CDNOW with its pending merger with Sony/Time Warner’s Columbia House has the more well-known artists catalogs to sell.

And searcher Lycos has an MP3 directory up on its site. That gives a window of opportunity to hit the top of the charts in its model and revenue outside Group Arnault’s contribution.

All of the above aside, I believe in my instinct that may be at the center of opportunity to leverage the transition from CD to Web downloads. That like the early Netscape or Excite, it is in what I believe looks like an enviable position to exploit the platform and its user base.

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