"I don't care if you think I'm dumb. I know I'm happy and I don't hurt no one. U'm Not Dum."I'm not dumb enough to fall for David's first trap. Just because I have music on MP3.com does not mean I have some kind of bias toward the company that will muddle my investing vision. That's like telling the millions of America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> subscribers to dump their shares of AOL or the e-citizens of eBay <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EBAY)") else Response.Write("(Nasdaq: EBAY)") end if %> to cash out pronto. Kicking tires is a critical aspect of stock analysis -- especially if it's your own ride.
-- "U'm Not Dum!" by The Plastiks on MP3.com
Now, David does make some sound points. He's a Fool. That's what we do. But he also has a few contradictions and misconceptions that I think need to be addressed. Let's start with his notion in which he doubts that "classical music addresses MP3.com's hot-spot demographics." Once David spends more time on MP3.com, as I'm sure he will, he will realize that one of MP3.com's top-earning artists is 60-year-old classical pianist Ernesto Cortazar. With more than 2 million downloads since joining MP3.com, Ernesto stands to clear close to $20,000 this month alone.
MP3.com literally spans all genres. And while I too may have wondered how well the Classical Music Channel would pan out, last week the company announced that it was surprised by the huge international demand for the new service. Then again, when you have talents like Luciano Pavarotti and The Royal Philharmonic Orchestra signed up, it's probably an easy sell. I'm eager to see this product line develop and find out who they land for the upcoming jazz, alternative, and even children's channels.
So let's make sure we're all in the same key here. We have a site that is off to a great start in its music subscription service. Or, if you want free content, check out the hundreds of thousands of songs from promising and even established artists. Or, as the major labels come to shake hands with MP3.com, simply beam up your CDs and never have to worry about scratching or misplacing them ever again.
I didn't find anything in David's argument to dissuade me from what I see as the future of music. He thinks the differences between MP3.com and the major labels create a roadblock. I see an opportunity.
"But I said, Wait! These walls have doors. You can walk right through these old metaphors."David may not have realized it, but he made the most brilliant case in MP3.com's favor. He noted the sector hasn't been "the most melodious-sounding pack of late" and he's right. Companies like EMusic <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EMUS)") else Response.Write("(Nasdaq: EMUS)") end if %> and Audiohighway <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AHWY)") else Response.Write("(Nasdaq: AHWY)") end if %> are penny stocks right now. Lately, a rally in MP3.com shares can be best described by Spinal Tap's classic "These go to Eleven" zinger. No one is going to fund any new players -- certainly not to the tune of MP3.com's current $400 million war chest.
-- "Doors" by fellow Fool Richard Dahl (TMF Muse) on MP3.com
So MP3.com finds the demise of niche sentiment serving as its own insurmountable barrier to entry. And, even in the unlikely case that a competitor were to get that kind of capital funding, you can't just bag 67,700 unsigned artists at the drop of a hat. That's the mistake Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> and Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> made in competing against eBay in the auction scene. Sometimes, the first to scale becomes the last to scale.
But let's get back to the major labels. Let's talk business models. EMusic may have once captured the heart of the industry. Unlike MP3.com, EMusic charges for its music files. For $0.99 you can pick up everything from the latest They Might Be Giants single to cool stuff from up-and-comers Nukes. EMusic has signed up more than 600 record labels and now features close to 100,000 tracks for sale.
This may have been what the majors originally envisioned. A one-time fee for unlimited replay rights rules in the physical world. It fails in the digital one. Revenues for EMusic were a paltry $3.2 million last quarter. MP3.com's ad-based model generated $17.5 million in sales. EMusic lost $14.6 million while MP3.com had a deficit of just $8.4 million.
If you can't beat 'em, join 'em. The MP3 format is not going away. Last year it overtook "sex" as the most common search engine entry. David calls the medium "pirate-friendly" but it is no less copyproof than cassettes or CDs. The industry can shake its head at the file-swapping ways of Napster or it can embrace the one company that has found a way to quantify and monetize digital airplay for the artists.
David might question my views on the major record labels but he seems to be in tune with my thoughts on the unsigned stronghold of MP3.com. In that realm I liken MP3.com to what we here at The Motley Fool strive for -- empowering the individual. Both sites provide educational resources and an experience-rich community. For its part, MP3.com also provides exposure. My band is far from the top echelon of MP3.com artists, but we have already been offered movie and television work in just our first few months on the site.
So, sorry David, tell Jive I'm just not interested (which loosely translates into "We'll talk"). But, seriously, I tasted the majors. We were once signed to Sony's juggernaut Columbia Records label. We were given a six-figure advance and began to believe fame and fortune were a given. It wasn't. We never saw a penny from our label, which was actually the fault of our corrupt management and production company coupled with our own naivete, not Columbia. Still, there are artists who are going platinum today who won't see the kind of label money the top stars of MP3.com will be netting. My good friend Mikel Fair of 303Infinity is trending toward at least a quarter million over the year ahead. In the real world, it is the concert tours where the real money is made. In the digital world, the greenbacks come from the medium itself -- for the artists, and soon, the shareholders.
"Standing out into the light or chasing shadows of the past.
Hoping that tomorrow brings a smile that will last."
-- "It's a Miracle" by Hero on MP3.com
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