Despite Legal Pressure, Business Soars for MP3.com

The numbers are looking better for MP3.com, the music-archiving site under attack by the Recording Industries Association of America and its allies. Despite the legal pressure, MP3.com has seen its revenues surge as the popularity of downloadable music continues to grow. On April 20, the San Diego–based company reported that its revenue increased to $17.5 million for the first quarter of 2000 compared to $666,000 for the same period a year earlier. MP3.com now has 10 million registered users, according to CEO Michael Robertson.

Despite the growth, the company still reported a loss of $18.1 million, or 28 cents a share—less than analysts expected, and good news for investors. Reduced losses are to Internet startups what increased profits are to traditional businesses. More than 40,000 songs are archived on servers at MP3.com, which recently announced a $1 million per month "Payback for Playback" program to compensate artists for music downloaded by the site's members. The company budget now allocates $1 million each month for May and June to pay artists, based on the number of downloads requested.

The compensation program is MP3.com's attempt to make good on its claimed mission to support both artists and their fans. "Because it's based on the number of listens each song receives, we believe the Payback for Playback model compensates artists in the most fair manner possible," Robertson explained. "Not only is the largest online pool of money paid out directly to artists, but . . . artists can earn ongoing revenues from their music rather than from a one-time CD purchase."

The company also has a program for revenue sharing with artists when fans request entire CDs, and appears to be making good on its promise to deliver more equitable deals to musicians than they can get with traditional record labels. Except for the top tier of performers, musicians frequently find themselves getting shafted by contracts that give them little of the profit from their work—and/or bearing much of the development costs for producing and marketing their first recordings. The trend now is for record labels to make new acts assume much of the initial financial risk—a reaction against the excesses of the 1970s and '80s, when almost any new group with the right look and the right hooks could win a contract and immediately run up hundreds of thousands of dollars in studio time.

The financial abuse, of course, runs in both directions. The music business, like the film industry, is notorious for its "creative accounting," whereby wildly successful projects can be demonstrated to have earned no profits. "In many cases, the artists themselves are not sure how much they are making," Robertson says of the current system. "Through the 'Payback for Playback' program, we're enabling anyone to monitor precise listening activity and monies earned by each artist. Not only is it instant gratification for an artist's marketing and musical efforts, but it's also a level of accountability impossible before the Internet. Using MP3.com's technology, we can monitor every performance and ensure an equitable distribution based on precise listening habits."

Regarding the ongoing litigation with the RIAA and the future of Internet music ventures, Robertson says, "All of us involved in the digital music industry are experiencing various degrees of uncertainty as to what economic models will prevail in the future. Unfortunately, it is artists who suffer most from the turmoil created by industry lawsuits, copyright, and royalty issues. That is why MP3.com is continuing to put its money where its mouth is, in support of Internet-based music and the artists and labels who are contributing to this growing community."

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