Still, those numbers represent about half the sales of Public Enemy's previous albums. Teller blames the shortfall on a less extensive concert tour surrounding the new release. But he remains optimistic about future sales. Typically, he says, record sales fall off after promotional efforts cease. "We will continue to market and promote the record for months to come. The traditional labels will walk away from records after a short period of time."
For its first full year of business Atomic Pop saw revenues of about $2 million. The company has yet to turn a profit, but Teller anticipates one soon. By signing new groups such as the Gas Giants and creating a robust list of releases, Atomic Pop hopes to be aggressive in 2000. The company has also acquired the digital rights to 4AD -- the British indie superlabel that boasts such 1980s punk stars as the Pixies and Bauhaus. Add that to its $10-million capital infusion from New Valley Corp. and a recent partnership with Microsoft, and Atomic Pop isn't looking so indie anymore.
The MP3 piracy police
The RIAA is getting serious about piracy. It recently filed numerous lawsuits against music-related upstarts, claiming they've created a black market for illegal copies of digital music.
But not everyone online is on the RIAA's bad side. A handful of savvy start-ups have joined the antipiracy brigade by offering secure online distribution and easy-to-use licensing as a legal alternative to the MP3 free-for-all.
Reciprocal Inc., headquartered in Buffalo, N.Y., operates on a simple principle: all music, whether it's on CD, the Internet, or the Paleolithic eight-track tape, comes with an implicit license agreement. "You can't legally make 1,000 CD copies and sell them on the street," says Reciprocal senior vice-president Howard Singer. But online, it's a different story. Music is far too easy to copy and distribute illegally, and sometimes consumers are entirely unaware of their own illegal activity. "You can buy a song from Emusic.com, put it on your computer, post it on a Web page, and send it to your friends," says Singer. "There's no technology in place to put any speed bumps in the way of doing that. And the major record labels don't find that satisfactory."
Think of Reciprocal as a speed bump. It enables record labels to attach conditions to downloading and distributing protected intellectual property. Reciprocal handles the creation, storage, and issuing of licenses for digital property such as songs and research reports. Reciprocal then reports back to the content owners (record companies or publishing houses) on those transactions. The content owners in turn pay the recording artists any royalties due.
Reciprocal started out as part of Softbank Corp., a Japanese holding company with interest in more than 120 Internet companies. It spun out in 1997 and has diversified its offerings to include services for the text- and software-publishing communities. But with the proliferation of digital music distribution, the market for such a service in music alone is huge.
The concept has been a hit with the investment community. Last November, Reciprocal completed a $35-million round of mezzanine financing that included technology- and music-industry heavyweights like Hewlett-Packard, Xerox, and TVT Records. Microsoft had even made its own investment of $15 million in March 1999.
Singer believes that although music currently represents the lion's share of Reciprocal's transaction-based revenues, its text-publishing division may ultimately become the company's biggest moneymaker. And that's just a simple matter of price point. Textbooks and research reports can cost buyers anywhere from $80 to $4,000. Even if consumers make a practice of downloading entire albums, Singer reminds us, "you're still looking at a $10 to $15 item."
What the Heck Is MP3?
Unless you're a techie or a teen, you may not be familiar with MP3, the hot new method of music distribution. With MP3 the artist records his or her music in digital form and uploads the file for that music onto the Web. Consumers can then download files for their favorite tunes onto their computers and enjoy the music through their home sound systems. They can even store the files on special MP3 listening devices for their mobile listening pleasure.
Q& A
Music to Your Ears?
To help sift through the hype surrounding MP3 technology and music on the Internet, Inc. enlisted Joanne Marino, CEO and editor-in-chief of Webnoize, a research company and news outlet based in Stoneham, Mass., that focuses on digital entertainment.
Inc.: What are the basic challenges in the MP3 marketplace?
Marino: The fundamental problem is that it's hard to create a viable business in an environment where music is being given away for free. Young consumers are active shoppers and are easily swapping files. It makes it a tough environment to break into and actually make money. There are a lot of hot new music start-ups, and I don't know if a lot of them will make it through the end of the year.
Inc.: So who's going to last?
Marino: The businesses that are the most exciting in the long term are the ones that are able to build more meaningful relationships with the creators and consumers. They might offer higher royalties or increased market reach to the artist and maybe give consumers the ability to share music and information with other listeners. I'd be very wary of the so-called MP3 portals that are aggregating all these artists in one place but are not adding anything to the users' experience.
Inc.: Will we see a lot of acquisitions?
Marino: A lot of these companies will have no choice but to sell. They don't have viable business models. Right now, it's a race. If you have the money and the means to make it through the full marathon, then you'll do all right. A lot of these companies don't have any revenues coming in, and they'll either get bought or go bankrupt. You can't give everything away just to get people to pay attention to you.
Inc.: Do you think we'll be listening to CDs in 10 years?
Marino: No. We're going to be wearing our music like our clothing. Our experience is going to be mobile, it's going to be personal, and it's going to be intimate. But for us to get these kinds of services, we're going to have to put up with a lot more marketing and advertising. That's the catch-22.
Please e-mail your comments to editors@inc.com.
