"Don't be offended by My World, it's already started."Close your eyes for a moment. Close your eyes and open your ears. Wait, that won't work. Keep your eyes open so you can read this but pretend that they're closed. Done? Great. Now, picture the future of music delivery. Imagine a world where you could go online, seek out your favorite band's latest release, and buy it. Yes, you know that part well. You can head out to Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> and CDNow <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CDNW)") else Response.Write("(Nasdaq: CDNW)") end if %> and even stream some samples to make sure you're buying the right stuff. You can listen to an online radio station like Audio Highway <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AHWY)") else Response.Write("(Nasdaq: AHWY)") end if %> where an unfamiliar song being broadcast is identified and can be bought on the spot. Yes, this is all very cool. Today is very special.
-- "My World" by WET on MP3.com
But let's go one step farther. What if you could listen to the entire CD you purchased instantly. No hours of downloading. No trip to the mall. No days of waiting mailside. You pay. Boom. You're on. The CD might be on its way to you postally, but you can access it online as soon as you buy it. Nice? Wait, it gets better.
Since the CD, along with your receipt of said CD, is stored on a password-secure server (not your hard drive), it could be heard from anywhere in the world where you have Internet access. On the road with your laptop? Your entire music collection travels with you. Getting into the new wave of Internet-enabled wireless products that include everything from cellular phones to palmtops to your own car? Jam on, worthy Fool -- a virtual CD changer is always at your disposal. Sounds exciting? You know it.
One thing though... tomorrow came yesterday. Earlier this year MP3.com launched its My.MP3.com service that lets you do that very same thing. Buy a CD from select e-retailers and it's yours, online, immediately. Old CDs? MP3.com's proprietary Beam-It software identifies the CD in a matter of seconds and you have audio access to MP3.com's copy forever.
One thing though... forever ended yesterday. The Recording Industry Association of America (RIAA) sued. While you have a right to make archival copies of your CDs -- after all, it was record label giant Sony <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SNE)") else Response.Write("(NYSE: SNE)") end if %> that rolled out the MiniDisk system for that very purpose -- MP3.com users were actually listening to MP3.com's purchased copy sitting on MP3.com's server, not their own.
MP3.com lost in principle but not in music theory. If the users were to physically upload the CD, a time-consuming task even on the speediest of connections, one might assume that MP3.com would have won. The consumer and convenience would have been dealt a burdensome blow but probably done right by copyright law. Logic shrugged.
"Listen, no, listen harder, push your senses one step farther. Listen to the sound of your own fear, and tell me what you hear."You see, the major labels stateside have always been slow to adapt to change. They dread it and begrudgingly come to accept it. Formats come with painstakingly slow transitions (c'mon, fess up, I know some of you still play vinyl and 8-track tapes). They dropped the ball in the realm of digital distribution too. They argued with one another over proper encryption standards while MP3.com went out and built the better mousetrap.
-- "Mr. President" by Paris By Air (shameless plug -- that's my band) on MP3.com
"I can't get around you, can't turn away. Drown me in my own hate? Should I leave it up to fate?"The RIAA litigated, enviously. It sued to buy time. It sued to slow progress. But even while it seems to have the upper hand this time, claiming MP3.com owed billions, the New York Post recently reported that the RIAA seems willing to settle for $100 million. Interesting.
-- "Jealousy" by -simplicity- on MP3.com
If that's all it takes, if the story ends there, no problem. MP3.com has a beauty of a balance sheet and that sum is just a fourth of the company's cash on hand. Half of the company's market cap is actually legal tender. Really. But it doesn't end there. Now it seems, just as the performance rights organizations like BMI and ASCAP that represent the songwriters have struck deals with MP3.com, the major labels want to handle their own licensing deals. They realize that MP3.com is more of an opportunity than a hindrance, and who wants to dam up a potentially lucrative revenue stream?
How lucrative? Go to MP3.com, type in any mainstream artist, and you will see how much they had earned in Payback for Playback -- MP3.com's program that pays all artists, signed and unsigned, based on airplay -- for the first few days of May. The RIAA did its labels a major disservice, which in turn did its signed artists an even greater disservice.
Just like the video rental world, where after years of bickering Blockbuster <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBI)") else Response.Write("(NYSE: BBI)") end if %> entered into a revenue-sharing agreement with the motion picture studios, the music world is changing and MP3.com has seats front and center.
But there is another side to MP3.com. There is a vibrant community that was thriving long before the My.MP3 fireworks. MP3.com has drawn in more than 67,000 unsigned artists. They, in turn, have gone on to upload almost a half-million songs. Keep in mind that only a year ago, it was just 8,100 artists with just over 10,000 uploads.
It is that vast library of hidden treasure and grassroots fandom that has won MP3.com over 10 million registered users. The metrics are simply amazing. Every month more than 32 million songs are dished out -- streamed for either low- or high-speed connections or downloaded in its entirety.
Why are music fans coming to MP3.com? Because the artists are coming. Why are the artists coming? Why wouldn't they? MP3.com is paying out a million dollars a month to its artist community based on the airplay they generate. Artists can create a CD consisting of their MP3 song files in minutes and MP3.com will take it from there. Selling it on the site, handling the fulfillment, and giving the artist 50% of the gross proceeds (yes, that's the half of the gross total sale, not net). Beyond the money (and any self-respecting artist will say it's about the art, not the greenbacks, though we know better) MP3.com also provides that high-traffic platform.
Bands are getting signed to record deals, licensed into movie and television production work, and hitting the road on tour, all because their music is suddenly accessible to the entire wired universe. Something really special is going on, though I trust my Foolish buddy David is only beginning to tune up to play the blues this week.
Is MP3.com losing money? Sure. The ".com" is no accident. But pro forma net losses are narrowing and sales are exploding. Last quarter, revenues shot up 25-fold to $17.5 million. The bands, fans, and sales are coming -- investors and the industry tortoises can't be too far behind.
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