Emusic revamps to stay in tune

greg

It took a lot of searching to access this article to get beyond the paywall, so if anyone else wants to read it, here it is below

eMusic revamps to stay in tune
Indies site has 400,000 subscribers but lacks social media features
SharePrint Email Comment By Matthew Flamm
eMusic.com
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Insider eMusic.com's new West 13th Street offices, a stage will soon be built that will allow the company—a sort of indies-oriented iTunes—to hold invitation-only concerts by some of its members' favorite acts. And this week, members will get a taste of the big changes coming to the service later in the year. These will include a cloud-based “locker” that will allow eMusic subscribers to stream their personal music collections on mobile devices.

What's more, the company is expected to announce a licensing deal in the coming weeks with EMI, completing a round of deals that brings all four major labels into the eMusic fold.

All this is happening just in time.

Thirteen-year-old eMusic, a pioneer in the digital business that offers subscribers a discount on download prices, now stands at a crossroads. Players like Rdio, Rhapsody and MOG are attracting a growing following with all-you-can-eat, streaming music services, which allow paying subscribers to access songs without actually owning them.

While eMusic also lacks the cutting-edge social media features of its newer rivals, the company's executives insist that it has something more valuable: 400,000 members who pay around $12 a month.

“We start with one huge advantage: a very large, very stable membership base,” said eMusic Chief Executive Adam Klein. “Many streaming-only services do not have a sustainable business model.”

A former EMI executive and Booz Allen Hamilton partner, Mr. Klein took charge of the company in August as part of an effort to ramp up growth by eMusic's parent, Dimensional Associates, an arm of Manhattan-based JDS Capital Management. His hiring followed reports early last year that Dimensional, which bought eMusic from Vivendi Universal in 2003, was thinking about selling it.

Playing the right crowd
$12
COST of monthly subscription to eMusic Mr. Klein touted eMusic's members as knowledgeable music lovers in their 20s to 50s, who mostly purchase downloads of albums as opposed to individual songs, and who like that the site offers hundreds of original articles and reviews each month. Agreements with the major labels, he added, will make eMusic even more attractive to those subscribers while bringing in new ones.

“To its credit, eMusic has identified the key values of its constituency and is not trying to be all things to all people,” said Gartner Inc. analyst Mike McGuire.

But whether Mr. Klein can lead the company to growth is another story entirely. eMusic's subscriber rolls haven't budged above 400,000 for three years, its 2010 revenue of $65 million was down from $70 million in 2008, and the site has always operated in the red. The CEO argued that the lack of profits was a function of continued investment in the business.

Furthermore, adding major labels has been controversial. In the fall, three well-known indie labels, Beggars Group, Merge and Domino, broke away from the service in a dispute over terms, leading some observers to question eMusic's continued indie-centric appeal.

Mr. Klein said that he was in talks with those labels and still hoped to win them back.

Meanwhile, eMusic must contend with some powerful new rivals. Swedish streaming-music service Spotify could soon be among them. The company, which is preparing for a U.S. launch, boasts 1 million paying subscribers in Europe, and 9 million who use its free, advertising-supported service.

“There is room for different models in the market, but I would bet on the streaming subscription services,” said David Schulhof, co-founder of music publishing company Evergreen Copyrights.

Mr. Klein has not ruled out a streaming model for eMusic, if that's what members want. But he insisted that the site's community and small-label focused atmosphere would continue to be a draw.

He also believes that more tracks—12 million this month, up from 10 million in September—smartphone and tablet applications, and a more consumer-friendly site will spur growth.

Solid ties with the music companies will help in rolling out the new applications and products, Mr. Klein added. “We have long relationships with the labels and write them good checks,” he said.

ScissorMan

Matthew Flamm

Clearly not a "reporter" in the investigative, actually-do-research, write-something-other-than-what's-in-the-press-release sense of the term. And quite frankly, he's a bit scary-looking.

Doofy

Here's my summary of that article for those too lazy to read it:

1. eMusic still exists.
2. They have some subscribers.
3. Cloud cloud cloud.

edit: 2a. They are getting EMI.

amclark2

It took a lot of searching to access this article to get beyond the paywall, so if anyone else wants to read it, here it is below

Many Bothan spies died to bring us these plans. [/dork]

Thanks though greg; that's an interesting article. The two things that stuck out to me were "always operated in the red" and "revenue down from 2008."

Germanprof

Yes "always operated in the red" caught my eye, too. Made me wonder when the day might be when the smart move would be to max out on boosters, download madly, and then put a tombstone up next to LaLa and Amie (and I'm not necessarily thinking fold completely, more another radical service change that makes it unusable).

jonahpwll

"In the Red" isn't necessarily reason to panic.

There are plenty of benefits to a company to show a loss. And, also, there are many ways for a company to be pulling in more cash than they're sending out while the bottom line still shows red.

If a company has lots of non-cash expenses (ie, large sums spent in "Year One", whose cost is spread out over the expected life of that asset), the company could still be solid from a cash-flow perspective, while still reflecting a negative net income. This could beneficial in terms of avoiding income taxes. Also, there are varied approaches "buyer companies" apply to whom they scoop up, and some of those deal with underperforming companies... showing some red doesn't necessarily make a company unattractive.

But all of this is in the general sense of things. My knowledge of the music download business model is pretty thin, so how much of my pedestrian information above actually applies to the emu situation is debatable.

amclark2

That is something I didn't really know.

Still operating in the red and then losing $5 million in revenue? What could they have invested $5 million in? The cloud? How do they plan to recoup that? I'm not paying for it. Are you?

thomnottom

I would assume they are still paying for the CC debacle...

jonahpwll

Well, like I said, I'm not sure if any of that applies to emusic. What could they have spent five million on? I can't say... My knowledge of their industry is pretty thin. But in theory, if they invested in a mass purchase of networks in order to host all the music as well as allow for growth like doing these concerts they're talking about and to also allow room for cloud lockers (god, I'm so out of my depth here), let's say they spent ten million on a bunch of "stuff" that all fit under the same category and purpose, well, they could spread that cost out over some expected lifetime (tho, probably more likely driven by IRS guidelines for amort/deprec), then you'd have a ten million hit to the cash flow in year one, zero hit to cash flow in later years, but non-cash expense in every year of its expected usefulness. How they would recoup that? I assume by generating new revenues with new customers, maybe upgrades on accounts for access to new features, crap, I dunno.

I haven't seen their financials. I'm operating in the dark. I'm just saying that being in the red isn't necessarily a reason to panic.

jonahpwll

CC debacle?
Credit card?

elwoodicious

@thom, I'm sure that'll be a hell of a write-down.

Bad Thoughts

CC=Circuit City

jonahpwll

I see a google result for a Circuit City store suing emusic, but it was tough to figure out from the documents exactly what for.

Or does this have to do with those prepaid cards?

Bad Thoughts

Out of curiosity: who here needs more EMI? I could use so more Gerry Mulligan, but after the Guvera giveaway, I feel I've rather thoroughly plumbed the depth of the catalogs.

thomnottom

Yeah, the prepaid cards. In case you weren't around for that one, Circuit City dumped their 65 credit cards at $4.95 each - less than 8 cents per track. Personally I bought 20 of them, which came out to about 100 bucks for 1300 songs - and I certainly wasn't the biggest spender. It's still not completely certain who took the bath on that one (eMu, CC, the labels, or the artists).

Germanprof

OK, OK, so I missed the guvera giveaway and I missed the circuit city card dump...today's posts are making me jealous! Someone be sure to give me a timely heads up next time there's a feeding frenzy :-)

Dr. Mutex

@Germanprof: Nah, you're barely jealous at all, yet. eMusic used to have unlimited downloads for the monthly subscription, later 'capped' at 2,000 downloads. If you went over you got a nastygram suggesting that you were evil scum who stole candy from children--Or something along those lines. This unofficially entitled one to add (Club 2K) to their user name back when you could change it. You want to talk about a feeding frenzy, the last month of the unlimited plan we practically melted eMu's servers.

eMusers is a good place to find out where the gravy train has pulled in. Any big news will probably be pinned so you won't miss it.

greg

For me the key point was the comment about being in the red. Thanks for the possible explanation johanpwll. But how much longer can it go on as it is - possibly explains why they wanted the majors, though, to try to become more profitable... I think it really is watch this space. But combined with the comment a week or so ago that Apple makes virtually nothing from itunes, it does make me wonder about the viability of the (paid for) music download business, and whether in the end we will all have something like Spotify with adverts paying the costs

Katrina

I would assume they are still paying for the CC debacle...
heh. That one made me laugh.
Good thing they're incorporated, because after 5 years of losses, other types of businesses have to declare themselves hobbies.

Doofy

Anyway, Prof, I would put it to you that you're front and center for the Bandcamp feeding frenzy.

Germanprof

True enough :-).

Doofy

You know, the more I hear about "music in the Cloud," the more I'm inclined to say "Stick it where the sun don't shine." Check this out from a Hypebot post on a new Google music service:

Unlike current talks between Apple and rightsholders over storing music bought on iTunes in the cloud and allowing play on a variety of devices, Google wants to store music purchased anywhere. Since they've got the purchase data, it's easy for Apple to know the tracks in their locker were bought from them. But how can Google verify where tracks in their locker were bought or if they we obtained legally?

I don't know about you, but it will be a cold day in hell before I use any source from Apple, Google, or the Dalai Lama, for that matter, that requires me to "verify that I obtained my music legally!" This goes right back to the DRM Stone Age, as far as I'm concerned. And thus I will continue to carry my music around on iPods for the foreseeable future...

kargatron

I think such verification is unworkable, if you want to offer a useful, desired service, so I'm not worried about it. I think some generic averaged license fees behind the scenes will instead end up what happens.

Doofy

I agree that's what makes sense, Karg. It sounds like that's exactly what Google is trying to negotiate, against resistance from the labels. It seems clear that the upcoming iTunes streaming service (and eMu's, for that matter) will give you access only to songs purchased at those sites. Perhaps we'll eventually see a service that lets you consolidate your library of songs bought from these and other online music stores. But CDs you've (legally) ripped and other "unverifiable" sources...? Based on past behavior, I'd bet the labels are going to fight that all the way. I'm also very wary of the RIAAs of the world sniffing around to see if you have "unverifiable" music in the cloud...no doubt in my mind they'll do it if they can.

Daniel, Esq.

lala didn't require such notification. iirc, once you linked to the cloud service, lala figured out what in your hard-drive was available on lala, and you could stream those titles from your computer (or once you logged-into your lala account from any computer, i suppose).

anyway, i think emusic will eventually introduce a cloud system (they've certainly been talking about it in the press). but the article that inspired this thread is way-off, unless the announcement is being rolled-out today.

amclark2

wasn't there a cloud store 10 years ago? mp3.com or something? I know there was something that let you upload or verify what you had and listen to it from their servers.