StockTalk:
TMF Interview With Platinum Entertainment CEO Steve Devick
With Yi-Hsin Chang (TMF Puck)
and Brian Graney (TMF Panic)

May 12, 1998

Our guest this week is Steve Devick, chairman, president, and CEO of Platinum Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PTET)") else Response.Write("(Nasdaq: PTET)") end if %>. The company caught our eye on April 29 when it announced that in conjunction with Platinum Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PLAT)") else Response.Write("(Nasdaq: PLAT)") end if %> it would launch a service on the Internet allowing customers to sample music online and digitally download music from its catalog of 13,500 recordings to create customized CDs. In addition, customers will be able to mail order from almost 500,000 titles. Since the beginning of the year, Platinum's stock has risen 50% to around $10.50 per share.

TMF: We understand that your service will be fully operational in the third quarter. Could you tell us a little bit more about the service, which has been described as an "entertainment emporium"?

Devick: We'll have three methods of selling music. The first two, I think, are not as exciting as the third. The first will be a database of existing titles similar to many other [Web-based] music malls that enable you to make selections of existing CDs that you can buy in stores, have them sent to you, and save a trip to the store.

The second way, of course, is to select and burn your own CDs through our catalog and other companies that we're able to license music from. I think the difference between us and some of the other music malls right now is that we're an existing music company first. We sell records in retail commonly, and we have artists signed to our label. Last year we did pro forma about $60 million in sales just through regular channels without the Internet.

"But like we say around here, you can't download things like bananas -- you have to have them delivered -- whereas you can download music."

So we'll allow people to click on and make selections from our catalog and other catalogs that we're able to license, so they can have a CD burned by us and then mailed to them.

What we think is the future of music, though, is where you'll be able to do exactly that except [you'll be able to] download onto your own CDR (compact disk recorder) a customized CD. I think eventually we'll even be able to download existing CDs and the artwork that goes along with it. That will allow people to get exactly what they want. In other words, the selections of an 11-song CD that they don't want -- let's say they only want four, they could just get the four. Because they'll also be able to download the artwork on their color printers, I think this will be a real change in consumer buying habits.

It's one of those opportunities where a commodity like music, movies, and software is more efficiently purchased on the Web. Other commodities -- like you can select groceries and things and have them delivered -- are nice ideas and good promotional opportunities. But like we say around here, you can't download things like bananas -- you have to have them delivered - whereas you can download music. So we're really excited about that third opportunity. We think that's the most interesting, and we really think that's the way people will buy music in the future. And that's the not-too-distant future.

TMF: We also think that's the most interesting sounding part. Specifically, how will that work, and what kind of equipment does a customer need to have in order to use it?

Devick: Well, a lot of computers -- and I don't know whether it's most yet -- but many have a CDR that comes with it. If you don't have that, for about $200 you can get all kinds of CDR boxes, and we'll send one to you, and you'll be able to order that and just attached it to your computer, of course. Most people who have a color printer will be able to download the artwork. The way it would work is just that: You click, download, it'll download onto your hard drive. We'll use systems available -- we haven't contracted yet but we've talked to people like Liquid Audio, which is commonly used. It'll be downloaded onto your hard drive, and then you transfer it to your CDR where you make a CD off a blank disk. You can transfer it once. It'll be encrypted and watermarked such that it'll prevent piracy, but that CD will play on any stereo. We hope to do DVDs real soon, too, because that technology is available also where you can download not only just the audio input but also the visual, and you can download it in the Dolby Digital Surround, the 5.1 Channel Surround.

TMF: How long will it take to download, say, a personal selection of 10 or 11 tracks?

Devick: Well, of course, that depends on what kind of equipment you have. If you have a cable modem without compression, you can do a song in about 40 minutes. With some compression with a 56.6 [modem], I think a song is somewhere around 30 minutes. That's all changing and getting faster. We don't really think that's an issue because again as we say around here, it may not be real fast, but we will definitely beat the U.S. mail any day.

TMF: Will it be the same sound quality as commercially produced CDs?

"You don't have to wait there to start it, and you don't have to wait until it finishes."

Devick: Sure, because you can do it with or without compression, and the compression that is used, people typically can't hear it, so we'll have the same sound quality. That's speeding up all the time. We just don't see that as an issue. The reason that this is different from when I was in college, everybody thought FM stereo was going to change the way you bought music because we could sit in our dorm rooms, get our cassettes out, and press the button when the DJ would say, "OK, it's going to start, it's going to start." We'd hit go, and then we'd have to sit there and wait and push stop, and that was just not that fun.

The difference is, obviously, as you guys know, you click on the songs you want, you go work on something else on your computer. Who cares if it takes eight hours to download an album? I really don't think that's a factor because you could be sleeping that whole time. You don't have to wait there to start it, and you don't have to wait until it finishes. I don't think it's going to take eight hours by the way. I think it'll get real fast real soon just with some of the changes that are happening on the technology side. So we don't feel that [download] speed is an issue because you can do other things.

We think there's opportunity for Internet radio, where we could play our songs and you could be working on your computer or whatever else, and if you hear one you like, you can click on and download it. We think that will be part of our service, and we really think this is the way people will buy records in the future and again soon, the near future.

TMF: Will a customized disk cost substantially more than a commercial disk?

Devick: No, but if it's a current hit from one of our rosters, let's say it's a Peter Cetera song, that would cost more to download than a catalog piece. But if you were to buy that same song in the stores as a single, you know that costs four bucks that way, too, and [ours] probably will be less than that. The real issue from an economic perspective is: When you think about what the company saves, we save on manufacturing and distribution; we save some promotional costs; we save collections; we save reserving for returns. The economics are so much better for the music company and, in addition, the consumer gets only the songs he wants.

We know it'll be more efficient and cost less for the consumer also. If you only like three songs on an album, you're forced to buy it anyway for, let's say, 12 bucks. And if you want 12 songs you like, and let's say there's three on every album -- you have to buy four albums, which is $48, to get those songs you like. If you look at it that way, even if you're paying more than a dollar a song for the hits, I think it's still economically more attractive. Plus, you don't get all those fill songs you may not be interested in having and you don't have to change CDs and things like that. So I don't think there's any question that it's going to be cheaper for the consumer.

TMF: How do you acquire the song? What qualifications do the artists have that make it on your list?

Devick: Well, we're a music company first, so we have the rights to the artists that are on our label and our catalog. Here's one way we'll acquire them: We do a lot of artists who have established track records and I get calls from people -- maybe you guys remember groups like Three Dog Night and the Turtles and things like that, people who aren't actively recording right now and may or may not have a big listening audience -- where we may not want to do a regular record for them. But what we could do is to have them re-record their hits.

We'll make it such that they're recorded in Dolby Digital Surround, six-channel surround. We'll proudly say we recorded in surround sound. It'll sound better than the original record, and that'll be available on our site to download. The original version, of course, at least now won't be available because the catalogs of the majors aren't available to download yet. So that'll be one way that we get songs for our website. Another is we made four acquisitions last year of catalogs. We're always looking for that. But just like the other companies that have download capabilities, we have the opportunity to license catalogs from other companies and provide those on our website also.

TMF: One of our readers wanted to know, how will your service compare to similar ones offered by Musicmaker.com and Supersonicboom.com? Specifically, how does it differ in terms of cost, number of titles, and user-friendliness?

Devick: As far as the difference, I don't know a lot about these companies, other than I know Musicmaker is mostly burn and mail at least at this point. Maybe they want to do more downloading. I shouldn't say that I know that. That's just what I understand they are [doing]. Supersonicboom has download capabilities and is a good company. But what those companies have always talked to us about is maybe to get to the content that we have and other labels have.

"It may not be real fast, but we will definitely beat the U.S. mail any day."

Remember the difference between us is, we're a music company first. We don't need to depend on licensing from other third parties to have products for our site. We'll do that to a certain extent, but we also have our own products. So, since we don't have to pay ourselves a licensing fee, it just has to be cheaper. Plus, we have artists on our label that have new releases, and so again that's a difference. They don't have artists on their label. It's not a music company as much as it is a music mall. The software that these guys use, I mentioned Liquid Audio -- that's commonly used among these companies. There are others out there: AT&T, Media City. They have technology available to provide this service.

We think that because Platinum Technology is involved, which is a large, efficient, well-capitalized software company that has some amazing website stuff -- [Platinum Technology] has done, for instance, a website for a grocery store. It was a 3-D experience where you're pushing the shopping cart down the aisles. You pick up a can of food, you look at the label, you read it. If you want to buy it, you throw it in the shopping cart. We'll have cute things like that, too, that will make the music mall interesting.

TMF: It sure sounds interesting. Thank you very much for talking with us, Mr. Devick.

Devick: Thanks for having me on.

Related Links:

Platinum Entertainment website

Platinum Entertainment message board

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