Tuesday, February 2, 1999
Price (2/1/99): $6 1/4
HOW DID IT FIND TROUBLE?
Unloved. Unplugged. An unfinished Internet symphony has been the unfortunate score for investors who expected Platinum Entertainment to be the next great e-commerce stock. Then again, as the country's largest independent music label, the company was probably all too familiar with one-hit wonders.
Hot on the heels of the April K-tel (Nasdaq: KTEL) explosion, Platinum announced that it, too, would launch an electronic music service. But like a Fender Strat with six broken strings, a sustainable chord could not be struck. The shares went into a fade out despite the company's unique advantages.
Sure, it would eventually sell the same hit titles as the much more visible CDnow (Nasdaq: CDNW) and Music Boulevard parent N2K (Nasdaq: NTKI). Yet, as an actual record company with ancient yet salesworthy acts like The Beach Boys, Kansas, and Dionne Warwick on its roster, the company owned a catalog of tunes it could package into custom order CDs or downloadable music files.
While some competitors were also adding made-to-order products -- musicmaker.com had been at it for a year already -- Platinum was supposed to be ahead of the pack in the sense that it didn't have to go out and land licensing deals --- it already had the artists lined up. But soon bigger online fish like Amazon.com (Nasdaq: AMZN) began to sell CDs, and eventually Amazon.com became the one to service the non-Platinum label orders for the company. For sale, busted Fender Strat, cheap.
Fittingly headquartered in Downers Grove, Illinois, Platinum Entertainment produces, licenses, acquires, markets, and distributes recorded music for a variety of genres.
The company's platinumCD.com website allows users to order custom-made CDs featuring the 13,000 master recordings in the company's arsenal as well as 160,000 song titles from musicmaker.com. Visitors can also order one of the 200,000 prerecorded CD selections offered by the Amazon.com.
12-month sales: $54.9 million
12-month income: ($5.2 million)
12-month EPS: ($1.30)
Profit Margin: N/A%
Market Cap: $37.5 million
(*For the first nine months of 1998 ending Sept. 30th)
Current Assets: $29.2 million
Current Liabilities: $54.3 million
Long-term Debt: None
HOW COULD YOU HAVE SEEN IT COMING?
So they've got The Beach Boys. How about some Good Vibrations? The April announcement, in conjunction with Platinum Technology (Nasdaq: PLAT), was not practical enough to merit the eruption of investor enthusiasm that was about to follow.
For starters, the process would have involved a customer downloading the musical selection onto a recordable CD-ROM drive. That was a limited market to begin with. Moreover, who had the spare hours to download an entire compact disc worth of music?
A month later, Platinum CEO David Devick would explain to our own Yi-Hsin Chang and Brain Graney how, despite the fact that each single would take about a half hour to download using a 56k modem, most customers would simply just let the music download in the background, as they worked or slept.
It didn't sound like something that would catch on. Patience is not an online virtue. Asking customers to be willing to commit a phone line for hours, risking being disconnected along the way, did not seem like a viable growth strategy to elevate the stock into the mid-teens.
WHERE TO FROM HERE?
The Platinum Entertainment of today is a much better suited company than it was before -- only selling for less than half the price. In October the company finally launched its platinumcd.com site, and the momentum has been amazing. After just 16,000 hits in October (and, yes, the service was launched at the start of the month), the company's online store received 1.5 million hits in November, and then 3.8 million in December.
While the link to the Amazon.com search screen may seem a bit amateur hobby home page-ish, the layout of its in-house musical talent section is superb. The company bolstered its original roster by taking a 10% stake in the company behind musicmaker.com, cross-referencing both libraries of titles in the process. The site even offers free downloads of abridged MP3 promo cuts from Platinum artists.
Platinum's one stumbling block is the mainstream value of yesterday's pop mavens like Peter Cetera and Taylor Dayne. Platinum has been signing the artists the major labels have cast off, hoping name recognition will drive catalog sales. Just recently the company signed The Oak Ridge Boys, yet another band looking for a musical revival.
In a nutshell, while you and I may wish upon a falling star, Platinum signs them up and then does some wishful thinking. While it's a safe and cost-effective approach for the company, and who knows if the next nostalgic return comes from the Platinum camp, it is not the aggressive drawing power Web surfers crave.
With losses expected to continue this year as well, is this stock, as Kansas once sang, just dust in the wind? I wouldn't dismiss Platinum so quickly. The stock is trading for less than it was before the Internet hype and, unlike most e-tailers, if the online business were to fall apart, the offline music business is more than plenty to fall back on in Platinum's case.
After all, what do you need? A new set of guitar strings and a trusty old amplifier to turn things up a notch again.
-Rick Aristotle Munarriz
Call Your Boss a Fool.
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