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David: Next, the CEO of MP3.com. His name is Michael Robertson. He founded MP3.com, and he's the chairman of the board as well. He is the former president and CEO of Media Minds, which is a developer of digital picture software, and the former president and CEO of Mr. Mac software, developer of networking and security tools. Michael received his B.A. from the University of California at San Diego, and Michael, it's a pleasure to have you on The Motley Fool Radio Show. Welcome, and how's your day been?
Robertson: It's been great. Welcome to my sunny town of San Diego!
David: We're very lucky to be here.
Tom: We're having a great time. Now, can you set the stage for our listeners who are not familiar with MP3.com? What is the technology, and also, where did the name come from?
Robertson: The technology allows you take audio files, which are normally very big, and compress them down to about one-tenth the size. Because they are one-tenth their original size, they are easier to move around the Internet, but they still sound as good as a CD. That's what the compression does. It's a way to squeeze down audio files.
The term MP3 came from the International Standards Committee that specified this format, the "moving pictures expert group." That's where the MP comes from in MP3. Another example would be when you watch a DVD movie. Actually, you can use MPEG for video compression. You don't know it because it works so seamlessly, but that's the same principle at work.
David: OK, Michael, how does an artist get his or her music up on MP3.com?
Robertson: MP3 has enormous benefit for both artists and music fans. Any artist can go to MP3.com and sign up for an account. It's a free account, and they can start marketing their music on the Internet using MP3.com. What's nice about this is that they keep all the rights, instead of signing them over to a record label, for example. They can sell CDs, and they get half of the money for any CD they sell. There's no cost to them. And, we have a program called the payback program, where they're actually paid for how many promotional songs are downloaded. So, this is a really neat way for an artist to get her music out to an international audience and actually be paid for that. Our top artists are on pace to make about a quarter of a million dollars just from free Internet downloads. So, what we're really doing is creating a sort of network-TV-like model, where everything is free. It's advertising-based, but for music.
Tom: Michael, the majority of your revenues today come from advertising. As you talk about the artists and their opportunities, have you thought about listing fees for the artists? Or do you have other economics to the plan that we don't see yet?
Robertson: We don't have any plans to charge artists. We're adding about 170 artists every single day, so it doesn't make sense, we think, to charge artists. What does make sense is, just as TV rolled out cable, the subscription system, and HBO, we're doing the same thing for music. In fact, last week, we announced our classical music channel. It's a great program for any classical music fan. They can go to MP3.com, pay $9.99 a month, and get complete access to an entire classical music library of about 400 albums that they can download, playback, and organize any way they want. So, we're kind of mirroring what TV and cable did for the movie world, but for music.
David: A U.S. District Court ruled on April 28 that MP3.com infringed on copyrights held by the world's largest record labels. This week your company announced that it would hold access to major label songs through MP3.com while you continue talks to settle the copyright infringement lawsuit filed by the record companies. Tell us, what's at issue in this case and is MP3.com guilty of copyright infringement?
Robertson: Well, we disagree with the court, but let me just describe the system and I'll let your listeners make up their own minds.
Robertson: MP3 is not just about artists getting out to music fans more directly. It's also about new ways for music fans to manage their music and access music. One of the services we rolled out is called My.MP3.com. This service allows you to take CDs you already bought, put them in your [computer's] CD drive where we authenticate that you actually own that CD and that it's a valid CD, and then we let you listen to it immediately in your online account at My.MP3.com. The advantage to this is that you can go to work, home, to a friend's house, eventually with your PalmPilot and your cell phone, and have complete access to your music library. So, it makes music totally portable by storing all of your music on the Internet. To make loading very easy for the consumer, we went out and bought tens of thousands of CDs. When you load in your Bruce Springsteen CD, we don't actually copy all the songs from your CD, because all Bruce Springsteen CDs are the same. We let you listen to the copy stored in our system once you've given us physical proof that you own the CD. And, that list of CDs that we bought ahead of time is kind of the issue. The record label says it's copyright infringement, and the judge gave it to them in the first round of the legal battle. But, we think it's just you, a consumer, listening to your CDs in a digital CD player.
Tom: Michael, when we think about what's happening to the recording industry, and there are lawsuits tied to Napster, which we'll talk about in a second as well, where do you think music is going to go from here? Are we going to see a lot of new artists going direct to the Internet, and a lot of the big stars being built there over the next 20 years? Or is it going to be through relationships with recording studios, that big companies like MP3.com are integrated into the industry?
Robertson: I think some artists will go direct. But, for an artist to truly be a worldwide sensation, they still need retail, they still need radio. So, I think it's going to be another distribution channel, not one that replaces what's out there today.
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