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StockTalk
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TMF Interview With Launch Media CEO Dave Goldberg
July 6, 1999
With Dave Marino-Nachison (TMF Braden)
Santa Monica, Calif.-based Launch Media <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LAUN)") else Response.Write("(Nasdaq: LAUN)") end if %> is a digital media company working to develop an online destination for new music. The company offers album and concert reviews, song and music video downloads, personalized homepages and a for-subscription CD-ROM.
TMF: I've read some interviews with you where the interviewer automatically assumes that you guys are primarily focused on e-commerce. In the interest of not doing that, maybe you can start by laying out exactly what it is you guys do?
Goldberg: We're really a media company focused on music on the Internet. In the same way that CBS Sportsline <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPLN)") else Response.Write("(Nasdaq: SPLN)") end if %> or CNET <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CNET)") else Response.Write("(Nasdaq: CNET)") end if %> are focused on sports or technology, we're focused on music.
We're focused on a business model which generates very high gross margin revenues like advertising and transaction fees, and really focused on building a very large consumer base of active music fans and providing everything that they want about music at one destination.
TMF: Going back a few years, advertising seems like it's typically been more than half of your revenue. As you mature, what sort of a breakdown do you expect to see?
Goldberg: We've actually had some subscription revenue which was probably the other piece of it and we probably will have a smaller percentage of subscription revenue going forward. The subscription revenues came in the past from the CD-ROM monthly that has a subscription price of $20 a year in addition to advertising. It's really advertising supported, but because we had to send out a physical good we had to charge for that.
TMF: I remember, actually, the CD-ROM is when I was first introduced to your company many years ago. Is that going to get phased out?
Goldberg: Well, the CD-ROM as a delivery method is, but the content and the advertising and what we've developed there [isn't]. What we're in the process of doing is transitioning, delivering that content and advertising to people, which they love, to streaming it over broadband networks, cable modems, DSL. We've announced deals already with RoadRunner and EchoStar for cable and satellite modem delivery. We're working with some of the other cable proprietors as well as talking to some of the DSL people. We really look at what we have as a tremendous advantage in that we've been creating broadband content and advertising for four years.
TMF: I was going to ask to what degree you feel your future growth is dependent on customer acceptance of higher speed Internet access, as far as downloading videos and songs goes?
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"We're starting to see the broadband guys realize that they need content like what we do."
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Goldberg: We can have a very valuable business without broadband, and we think we can build a very compelling narrowband site and technology continues to improve to the point where -- particularly streaming audio quality with the new Microsoft Windows media technology -- the audio quality over narrowband has gotten incredibly good, the video quality is getting better. Some of the technology is also solving the bandwidth issues. We think they will sort of go in parallel and we're not really dependent on broadband, but we do think it's going to happen and I think we're starting to see the broadband guys realize that they need content like what we do.
TMF: With an advertising model, certainly one of your goals is to keep people around as long as you can. Can you talk a little bit about the way you do that? I guess you have some community offerings.
Goldberg: We're real focused on acquiring the registered user and that's basically our focus. When people register they personalize our site to their taste. So they get personalized text, content, music, news, interviews, concert reviews, when their favorite artists are coming in concert, those kind of things, as well as now as we've added more of the rich media stuff -- streaming audio, video, digital downloads -- again, all personalized to people's tastes.
And then they also become a member of the Launch community. Everyone who registers gets their own member page and as they personalize their favorite artist, their favorite albums appear on their member page so people can find other people who like the same kind of music they do.
So, we're very focused on essentially making those people stick. And we had, at the end of March, 1.1 million registered users. That's up from about 100,000 the year prior to that.
TMF: Can you talk a little bit about your promotional efforts, how you're going to bring new people in?
Goldberg: There's a whole bunch of different ways. The users themselves actually do a lot of it. Essentially your member page is also a distinct URL so they are out there telling people about their pages. We have distribution relationships with, really, all of the major portal sites. We're the exclusive music content provider for MSN and NBC.com. We're sort of the primary music content provider on Go! and we're one of a couple on Yahoo! and AOL. We're built into IE5, we're streaming audio. We're built into Windows Media Player for streaming video, music video.
We're also doing a lot of offline stuff. We're doing a lot of radio things. We're doing digital download promotions. We have unreleased tracks from the Beastie Boys on our site right now and those are free for digital download, but you have to register. That's really the first major label artist that has been given permission by the label to have digital downloads freely available to consumers.
TMF: In getting those Beastie Boys videos, probably the record company required you to use a secure download format?
Goldberg: For the downloads, yeah. All of the secure stuff is in a state of great flux and beta development so it's not as perfect as anyone would like it to be at this point. It's not as simple for the consumer as it should be, but I think the record label was pretty concerned.� We think that security is important. We also believe that a lot of music is going to be given away for free [by] traditional download. And we are really creating value by giving it away to the user for free, but making it secure so we get everybody to come to our site to get that song.
TMF: That was going to be one of my questions: MP3 has had the quickest grass roots acceptance, but that's all relatively new so nothing has that much approval right now.
Goldberg: MP3 is a file format just like there's lots of different file formats and lots of different kinds of digital media whether it's JPEGs, or GIFs, or all those sort of things. MP3's kind of captured people's imagination and it's really the first one that was sort of an open standard and the consumer could easily not only get the download, but could then code stuff themselves very easily.
I think MP3 will be the thing that started all of this but two years from now no one's going to be using MP3 because there are new codecs coming now which are much better and the consumer doesn't care about what the file format is. They really just care about audio quality, download size.� I think we're going to see continuing evolution in the audio quality that will obsolete MP3 pretty quickly.
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"I think we're going to see continuing evolution in the audio quality that will obsolete MP3 pretty quickly."
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TMF: So how do you prepare for this?
Goldberg: For us it's great. Only music consumers would understand what they like and people need to have access -- those music consumers need to come to us to get to them. So we think the future of digital downloadable music is really more like the television business. We actually don't think it's going to be about selling songs for two or three dollars or selling an album for ten dollars because it doesn't really make that much sense from a business perspective.
You can create more value by either giving it away and driving advertising and other transactions around all of the traffic generated from that, or charging a combination of subscription with an advertising component. But, if you look at other businesses, other content business, where there's no cost of goods and there's no marginal cost of distribution, they are almost always advertising- or advertising/subscription-based. I think television is good example.
And I think that music fits very well within that same model... because it's going to be so easy for people to get illegal stuff for free that in some ways giving it away legally for free makes a lot more sense.
TMF: Your site right now is geared to primarily pop, to a lesser degree country, and certainly to a younger audience. Do you believe there's going to be an opportunity for similar offerings for say jazz or classical music?
Goldberg: Actually, we cover everything on our site. We tend to create more content around stuff the users are interested in and that tends to be the more popular kind of music, but we have jazz. The one thing we don't have is classical and that's really just [because] it's a lot of work to do classical stuff and we're very focused on new music, whether that's new music from a major superstar or new music from a new artist.
But we're very focused on giving people whatever kind of music they like, so if people like jazz they can actually get very good jazz content on our site and they can get blues, they can get country, they can get whatever they want. It's very much a user poll method as opposed to sort of maybe a traditional media thing, which is pushing, saying "We like this, we hate this."
Music is one of those things that's both very broad in that everybody likes music, 50% of the U.S. population is an active music consumer. But nobody likes anybody else's music.� In fact, what sells on a regular basis for music is so minuscule. Name the top 10 or even the number one album in a given week for music, maybe only 100,000 units are moving whereas the number one movie in a given week, on a $5 ticket basis, could draw 8 million people.
TMF: What's your background?
Goldberg: My background is a little unusual. After college I worked at Bain & Co. doing strategic consulting. Then I worked at Capital Records doing marketing strategy and new business development and had this idea back in '93 -- so I'm kind of an ancient veteran, I guess -- that the computer is going to be this fantastic way that people can learn about music, that you avoided all of the problems of radio and television because people could chose the music they want to listen to. And that you could wrap advertising around it and make it a media business.
So that was the original idea back in '93. Started the company with one of my good friends from high school who was working as a lawyer at the time. We quit our jobs, started working out of our apartment and people thought we were nuts.
It's been a lot easier today than back then. For an Internet company we're pretty old, but I think it's been good because I think the Web wasn't really capable, in the very beginning, of doing the kind of stuff that it is today in terms of delivering a great music experience for people.
TMF: Is there anything else you'd like to add?
Goldberg: No, I think that's it. If you have any other questions for me, give me a buzz back.
TMF: OK, that's great. Thanks again.
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