January 23, 2001

LA QUINTA – If MP3.com CEO Michael Robertson has his way, this will be the year the MP3 digital-music format really goes mainstream.

One aspect of the format already is taking off in the form of MP3 digital music players, with sales predicted to increase tenfold in two years. But Robertson envisions the spread of a "music inter-operating system," or IOS, that would connect a Web of retailers, mobile phones, home stereos and televisions.

And San Diego-based MP3.com is poised to take advantage of that mainstreaming with its brand, infrastructure and the strategic alliances it has forged, Robertson told a technology conference Tuesday in La Quinta.

Michael Robertson tells of synergy of alliances Cable-DSL / 56k Robertson demonstrates buying an album and having it delivered over the Web Cable-DSL / 56k The FREE RealPlayer plug-in is necessary to play RealMedia.

MP3.com's harnessing of the Internet and special file formats to allow consumers to search, sample and download music free of charge had made it the target of major players in the recording industry. Last year, MP3.com made headlines for its many legal battles for copyright infringement in which it was the loser.

With those battles settled in court – to the tune of more than $100 million in legal fees – the stage is set for the pioneering dot-com to capitalize on its strengths, strengths that include popularity of its Internet-enabled format and the alliances it has forged with recording companies, retailers and device manufacturers.

Sales expected to zoom

Robertson, speaking at Upside's Showcase 2001, hopes to settle the massive legal bills and achieve profitability by generating revenues from the sales and licensing of software tools. These tools provide what he calls the "connective tissue" that's currently missing from the digital music available on the Internet.

"There's no Internet for music today," he said. "You download a music file on your computer, but you can't do anything with it. There's no network, no common language that allows retailers to talk to devices, so that Internet sites and artists can get their music right to your home stereo.

"That's what's missing, that's what we think you're going to be seeing over the next year or two. New innovations in digital music will be a connective tissue between these different parts of the business that will enable consumers to do things with music they've never been able to do before."

From MP3.com's perspective, that includes support of a "music IOS" Its goal is to make it possible for disparate businesses in the industry to communicate with each other. Thus, a retail music Web site tied into a site like MP3.com's My.MP3.com can enable a visitor to the site to order the CD online, and make it immediately available in their digital storage locker.

Instant music

"I have that entire album I just purchased immediately available for playing at home," he said.

Consumers who order online will still get the higher-quality CD audio recording in the mail, but consumers can immediately begin enjoying music they've legally purchased and own over the Internet, he said. Robertson's vision is that MP3.com provides the software tools to make it possible for every CD retailer in the world to participate in the lawful delivery of digital music.

More exciting to Robertson is the opportunity at the output end of the digital music equation.

"What about when that music gets delivered not to my PC, but to my cell phone, or to my home stereo, or my set top box? That's part of the music IOS too. It says, 'Hey, device companies, if you take these common set of codes that plug into it and support it, you'll be able to plug directly into this infrastructure, meaning that when I buy that CD online, I'll instantly have it in my home stereo.' "

Gadget's galore

Robertson hopes the devices will sell for as little as $99 by year's end.

Portable MP3 players are also available. And at the conference, Samsung and a company called Voquette touted a device called the Uproar that combines the functions of a cellular phone, a personal digital assistant, MP3 player and Internet Web browser using the Sprint PCS network.

Increasingly, consumers are being presented with more choices for ways to play MP3 files. In 1999, only five manufacturers shipped devices, according to Cahners In-Stat Group. By the end of last year, there were more than 50.

MP3.com's partners in the forging the "music IOS" include 125,000 artists who support the format, Warner Bros. Music group, and Tower Records, which last year sold about $1 billion in products at the retail level, according to Robertson.

Yet the company has yet to turn a profit, and there are those who wonder if MP3.com will ever be profitable.

It owes $53.4 million in damages to Universal Music Group alone in one copyright infringement case. To settle other cases, MP3.com agreed to pay Warner Bros. music group, Sony Music Entertainment, BMG, and EMI Group PLC each about $20 million in damages. It also must pay a fee each time one of the label's albums is registered by a user, and a fee each time a user accesses one of its songs.

But Robertson is characteristically optimistic. He points to the movie business, in which companies generate revenues not only at the box office, but other means as well.

"Is it going to be flat-rate pricing? How about pay per views?" he asked rhetorically. "Well, the answer of course, is all of the above, right? In the movie industry the content manufacturers leverage all of the business models to maximize the amount of revenues, and that will be the same online as well."