Saving MP3.com

Online music isn't dead. It just smells bad.

At least that's what I keep telling myself. Yet, the world's most prominent site for music by unsigned artists stumbles on toward its dot-com coda. Last week, Vivendi (NYSE: V  ) shuttered its MP3.com Europe operations and suspended new registrations for its free artist services.

One of the more jagged pieces in the entertainment puzzle Vivendi is looking to unload, MP3.com had the misfortune of growing up under the care of disinterested foster parents. First the site's original owners cashed out to spare the company the legal fisticuffs over its copyright-slapping music locker technology, then things got worse under Vivendi.

Owner of Universal Music Group, Vivendi presumably had very good reason to keep the site's potential untapped. Universal represents the old guard, under which only artists signed to restrictive long-term recording contracts matter. It would have been counterproductive to showcase the unwashed, unsigned, and unshackled. What message would that send to its signed roster of artists?

The great unsigned
Yet MP3.com managed to grow under the carpet's shade. Sometimes that redheaded stepchild in the closet is a hydra -- 250,000 artists and a library of 750,000 songs are streamed or downloaded by registered users now counting in the tens of millions.

Whether it's MP3.com's destiny to be auctioned off as an asset combo meal to another uncaring conglomerate or to be sold piecemeal to a new owner with musical interests, it wouldn't be right if I didn't offer the same "10 Ways to Save" treatment I scribed for McDonald's (NYSE: MCD  ) McMaladies and Disney's (NYSE: DIS  ) two-parter last year. So, let's hit it.

  1. The fat network of major label distribution on a national level is as doomed as it is flawed. Thankfully, the grass is greener on the grassroots side. With 250,000 artists scattered all over the world, it's far more feasible and realistic to go regional when it comes to offline promotion. Test a few of the most active cities first. Target the area's best artists and buy or sponsor a small block of time from a local FM radio station. Use that broadcasting time to showcase local MP3.com artists. It will not only draw other worthy performers to the site, but also attract listeners who will now regard these homegrown artists as local success stories.

  2. While starting an MP3.com record label would be the equivalent of opening a buggy whip factory, what about compilations? Every month, issue a new CD with a dozen of the most promising tracks on the site. Sell it individually as well as at a discount to annual subscribers to keep a steady circulation growing. Play up the local aspect too by creating a groundswell of media support from a dozen different regions every month.

  3. Why is Yahoo! (Nasdaq: YHOO  ) buying Overture (Nasdaq: OVER  ) ? For the same reason infamous thief Willy Sutton gave when asked why he robbed banks -- it's where the money is. Until the online ad market bounces back, sponsored pay-per-click search results make up the profit gravy in the free content meatloaf. While MP3.com does have corporate ads wedged into its search engines, it is not tapping into the sticky possibilities of having its artist base bid on the prime real estate of similar established artist keywords.

    Yes, MP3.com once auctioned off promo space on its charts and sold text ads atop individual artist pages. In a performance-driven world, establishing a fixed price an artist would pay to introduce an interested listener to new music would help in many ways. From offsetting streaming costs to giving artists a reason to monitor how their deposits pan out, this would give the site a good reason to market its search results -- and the lucrative promotion of indie artists on the backs of established artists -- beyond the accidental traffic tourists.

  4. The biggest roadblock to monetizing the digital distribution of music has always been the free alternative of file sharing. If the Recording Industry Association of America is able to scare enough peer-to-peer users to play it straight -- and that's a big if -- there will definitely be a market for indie music priced somewhat below Apple's (Nasdaq: AAPL  ) iTunes but clearly north of nil.

    Indie-run sites like Ampcast and AX3 have their pulse on the future by selling individual tracks by unsigned artists. And AX3's token system is a clever solution to manage the sea of micro-payments, but those sites are not marketed to mainstream listeners. MP3.com has the traffic to make it work.

  5. How's this for an ironic interlude: MP3.com used to have an affiliate program when it had little more to sell than free click-throughs. Now that the company has created tangible revenue streams like premium artist memberships and MP3-based CDs, there's no affiliate program to let effective webmasters market the site beyond MP3.com's cyber reach. That's ludicrous. Bring back a quality affiliate program and let others sell what MP3.com has had trouble moving on its own.

  6. Billy Joel sang of people sticking "bread" in his jar and street musicians know the universal language of an open guitar case. If setting up a system for the site's artists to receive tips with MP3.com skimming a bit off the top sounds low-rent, why are classy dot-com winners like Amazon (Nasdaq: AMZN  ) and eBay's (Nasdaq: EBAY  ) PayPal offering a similar service? Yes, HTML-savvy artists are able to set it up that way already. However, MP3.com could have a seamless system integrated into the artist page design so that it is not bypassed a commission and more artists are able to take advantage of the service.

  7. MP3.com has always lacked editorial content. Is it naïve to believe that slapping artist photos on top of stream links is all it could do? Sure, a music site is ultimately about aural gratification, but what happened to the joys of milking a brand to multi-sensory excess? And why should the line be drawn at the monitor? In a world filled with niche monthlies like Guitar Player and Electronic Musician, isn't the market ripe for an MP3.com branded magazine flush with recording gear reviews, artist interviews, and artist exposure tips for unsigned artists? Of course, it is. Slipping in that musical compilation disc would be a bonus.
  8. In the early years of MP3.com, venture capital and the IPO piñata mandated that the company grow at any cost. While it cost the company more money than it was taking in to stream music, it went ahead and started paying artists by the free download. The ethical jam session went acoustic as unscrupulous artists gamed the system. Trading rings and fraudulent streams were the order of the day and it hit the company in the billfold and in the credibility of its charts.

    While the free-spending mindset won over new artists with gold-rush whispers, the company never tried to attract new listeners. It was the fan who would ultimately create the commercial transactions that the site needed to cement its role as a new music hub, yet MP3.com never spent the money to advertise in the real world. Sure, its model was a bleeder then, but once those clots harden, it has to make a difference to those on the other side of the stage.

  9. One of MP3.com's draws is its CD program. Yes, the tracks are based on MP3 quality, but the benefit of having CDs burned on demand and fulfilled is something that unsigned artists can rally behind. It's a moneymaker for MP3.com, so it's hard to imagine why the company doesn't make a greater effort to push the product. Back to the grassroots thinking, why isn't it stocking independent stores with merchandise from area artists? Why aren't there kiosks at the mall with listening stations?

  10. I'm holding out hope a community-driven company with deep pockets like Apple, Yahoo!, or even Microsoft (Nasdaq: MSFT  ) ultimately wrestles the MP3.com dowry from Vivendi. Any company willing to flesh out the site's bare-bones infrastructure into the proper potential represented by 250,000 bands along with their friends, fans, and families is welcome to apply. But if another conglomerate with blinders and dim specs has karma-killing intentions like simply trashing the possibilities in favor of redirecting the fading traffic, think it over. Consider giving the reins to someone who has managed to merge indie artist interests with real business opportunities like CDBaby's Derek Sivers or IUMA's Jeff Patterson.

What have you got to lose? Time is a melody that's best played in the key of B-sharp. C?

Rick Aristotle Munarriz speaks from experience. His band Paris By Air was once signed to Sony's Columbia Records and he has been able to exploit the online medium to generate 400,000 streams on MP3.com. He is also a member of the 1Sound.com founding group for aspiring indie artists and promotes unsigned music at LiquidStereo.com. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.


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