What a great business idea: Sell music digitally over the Internet, respecting copyright laws and channeling money back to musicians, songwriters, and record companies. It's called iTunes, of course, but before Apple came to dominate the digital music market, there was Gerald Kearby and his pioneering start-up, Liquid Audio.
Kearby, a former Marine Drum and Bugle Corps drummer, founded and ran three Silicon Valley start-ups, all tied to audio technology. Along the way, he built custom equipment for the Grateful Dead and Jefferson Starship. Kearby died on August 6 when his car ran off the road near his Pescadero, California, home. He was 65 and had survived surgery to remove a brain tumor three years earlier.
Kearby's reputation exceeded his business success in part because he was recognized for being an early--too early, it turned out--developer of a secure system for selling digital recordings. Liquid Audio, founded in 1996, did not build a digital storefront, as iTunes later would. Rather, the company sold its software to record labels, musicians, and retailers, which used the Liquid Audio platform to sell music through their websites. The files were encrypted to prevent sharing.
Liquid Audio raised $2 million in venture capital, then raised another $63 million in an initial public offering. By 1999, the stock was worth almost $1 billion.
Napster and others, however, were making music "free" in the minds of many consumers. "We were the guys in the white hats," says Kearby's longtime business partner, Rob Modeste. "Everybody gets paid. Protect the artists. But record companies didn't care. They sold us all the old, crappy content. They weren't going to let you near anything that was selling."
As it became clear that Liquid Audio wasn't succeeding, its stock fell, and at one point the company was valued at less than the $100 million it had in the bank. Steve Jobs tried to buy it for less than the cash held, and Kearby refused. Investors interested in the cash bought in and forced Liquid Audio to liquidate. "That was probably the toughest time in Gerry's life," says Hank Barry, who had been Liquid Audio's lawyer and then became Napster's CEO. "His company was taken away from him."
The growing success of Napster would, of course, finally force record companies to agree to sell their music digitally, and when it happened, Apple and iTunes were waiting.
Post-Liquid Audio, Kearby began researching tinnitus, from which he, like so many musicians, suffered. He learned that people who had years of profound hearing loss and then acquired hearing aids often suffered from reduced comprehension. He and Modeste started Neurotone, which markets a series of exercises designed to improve comprehension.
The company is not growing as quickly as Kearby and Modeste had hoped--perhaps, says Modeste, because hard-of-hearing baby boomers aren't ready to admit they have a problem. Hank Barry, back to being a Silicon Valley lawyer, has represented Neurotone and says of its timing: "It will appear somewhere in the future--like the digital music business."