Mp3 music online

Sell That Funky E-Music - profile of online music distributor GoodNoise Corp - Brief Article - Statistical Data Included

How one company is cashing in on the downloadable-music craze

GOODNOISE IS MORE than an online record store, insists Gene Hoffman.

"People often think we're just an online record store like CDNow because we sell music over the Web," says the CEO of the year-old start-up. "But we're actually the first Internet record company."

Hoffman, 23, and music-licensing guru Robert Kohn, 44, founded Palo Alto, Calif.-based GoodNoise in January 1998 with the idea of harnessing the growing popularity of an electronic-music format called [MP.sub.3]. At the time, thousands of college students and other Web-savvy Gen X-ers were downloading CD-quality digital [MP.sub.3] files to their computers for free and playing them back through their PC speakers.

Just how many people are downloading [MP.sub.3] files isn't known, but according to Web-traffic-analysis site searchterms.com, "[MP.sub.3]" is the second-most requested query entered into search engines after "sex." The only snag is that the majority of [MP.sub.3] files on the Internet are pirated. It's easy to convert existing CDs into [MP.sub.3] tracks and post them to the Web. Copies for personal use are legal; distribution isn't. GoodNoise, which runs a legit site, is trying to rise above the [MP.sub.3] muck to profit -- and help performers profit -- from this budding new market.

THINKING SMALL TO GROW BIG

As one might expect, because of the pirating issues, no major labels have dared to release their artists' albums in [MP.sub.3] format. That greatly limits what Hoffman and Kohn can sell on their site, goodnoise.com, which charges shoppers 99 cents to download a single and $8.99 for a full album.

But GoodNoise's strategy from the beginning has been to gain a foothold in the industry by selling the music of lesser-known bands that have die-hard fans. In May 1998, Hoffman and Kohn merged GoodNoise with an NASD OTC shell company, Atlantis Ventures, and went public so that they could raise money and acquire a handful of independent labels and the rights to their music.

ACQUIRING SUCCESS

Late last year they acquired Nordic Entertainment, which has a catalog of 15,000 songs -- among them tunes from Chuck Berry, Billie Holiday, and Jimi Hendrix -- for $6 million in stock and cash. They also bought Creative Fulfillment's eMusic Web site in a move to rebrand GoodNoise as eMusic in the near future.

But since they made those acquisitions, the duo have refocused on forming partnerships -- deals that are easier to put together. Revenue for 1998 was only about $1 million, but, as with most Internet start-ups, the play is for the future. GoodNoise hopes to have licensed content from a variety of independent record labels by the end of the year, says Hoffman, who met Kohn while the two were working for Pretty Good Privacy Inc., a San Mateo, Calif., encryption company. Kohn, a lawyer, literally wrote the book on music licensing -- Kohn on Music Licensing (Prentice Hall Law & Business, 1992). He wrote it with his father, a former executive at Warner Bros. Music. And before starting GoodNoise, Hoffman founded PrivNet, a company that developed software to filter out ads from Web pages.

Hoffman is positioning GoodNoise as a unique service that provides independent labels and artists with a new, alternative distribution mechanism and revenue channel, as well as a broad avenue to marketing and publicity. An average performer earns between 80 cents and $1.20 per CD sold, says Hoffman. But GoodNoise can offer $3.50 per CD -- a 50-50 deal that nets GoodNoise $3.50.

CONTROVERSY'S GOOD SIDE

The [MP.sub.3] format received a big boost last November when Diamond Multimedia was permitted to sell its tiny, portable Rio [PMP.sub.300] [MP.sub.3]-music player after winning the first round of its legal battle with the Recording Industry Association of America, which tried to block the release of Rio. Hoffman and Kohn are concerned about the legal wrangling, but all the publicity it's generating for the [MP.sub.3] format is actually good for business -- for the time being, anyway. "Diamond's going to sell a lot more Rios faster," says Hoffman. "And that's good news for us."