EMusic: New Subscription Service Slow, Loses $8.4 million.

By Richard Menta- 2/08/01

The best news about EMusic's Quarterly report is that it raised its earnings from direct downloads alone from $1.4 to 1.7 million dollars from the previous quarter. Unfortunately, the company is still hemorrhaging money, losing $8.7 million, or 21 cents a share.

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With only about $16 million of funding left, the company needs to drastically cut costs or risk running out of money in 6 months. That would be tragic considering that is about the time when Napster will also convert to a pay service.

Successfully launching an "all-you-can-download" type of subscription service experts say is the future of online music sales requires drawing an audience willing to pay. EMusic is the first to roll out such a subscription, but the results have been lackluster, as consumers have been slow to embrace the model, at least as a pay format.

Napster is the original "all-you-can-download" service, providing an online bazaar where members trade their wares. Napster's competitive advantage is two-fold. First, it's free and second, because it is comprised of the lifelong record collections of it's audience, all music is available on the service including out-of-print and international titles unavailable in the US.

EMusic on the other hand only sells the music of independent labels it has been able to make deals with. The major labels have so far shunned EMusic's attempts to make deals to sell their wide catalogs.

That is all going to change once Bertelsmann completes Napster's changeover to a pay service. Not only will there be a charge for "membership", but unless the company strikes a deal with the remaining major labels the amount of music available looks to be cut down to only what is available through Bertelsmann and its subsidiaries.

That will greatly level the playing field between Napster and EMusic, but such a change will not happen until this summer and EMusic needs to contain costs until then.

Ironically, all this disappointing news makes EMusic ripe for a buyout from the major labels. As we stated in an article last month "Who Will Buy EMusic?" the company is the only service actually selling digital music in volume, a feat the major labels are yet to create themselves.

Gene Hoffman, EMusic's President and CEO confirmed that with this statement. "While growth in the downloadable music market has been slow, EMusic remains the only company generating significant revenue from digital downloads and the only company offering a viable subscription service... Because of the investment over the past two years forging relationships with labels and our focus on the infrastructure behind paid-for downloads, we believe we are well ahead of others in providing a compelling music subscription service for consumers".

Presently, the company is under threat to be de-listed from the stock exchange. If that happens, the company will be cheap pickings from a major label looking for its seasoned staff and custom technology. It may be that reason why the major labels have shunned EMusic's attempts to forge relationships with them, waiting instead to take them over as Bertelsmann took over Napster and CDNow.

EMusic's total revenue for the quarter was $4.7 million. $3 million of that money came from online-advertising sales, most of it from EMusic subsidiaries RollingStone.com, Tunes.com, and DownBeatJazz.com.


Copyright MP3 Newswire 2001

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