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Corporate Restructuring & Layoffs at Emusic? Will it Work?
A look at the history of Emusic, 1998 forward...
By Margee Fagelson
(more articles from this author)
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REDWOOD CITY, Calif. -- January 12, 2001 -- Inc. (Nasdaq: EMUS), the Internet's leading seller of downloadable music, today announced a corporate restructuring aimed at reducing expenses and focusing the company on its two core sources of revenue -- advertising and promotional revenue through, and downloadable music sales through As a result of these actions and in line with its financial goal of achieving positive cash flow, EMusic expects to save in excess of $16 million in cash expenses during calendar year 2001.

Even the old guard is feeling the burn. Emusic has laid off 66 people which equals 36% of their current staff. Emusic has been around - in one incarnation or another - since January 1998, when it started as Goodnoise - has acquired some of the most trusted names in traditional and cross-media music brands including,, and IUMA. Emusic was the leading name in digital downloads - always at a price. The last year has seen its share of Emusic press. In fact, the last four years have seen their share of Emusic and precursor press. If this does bode ill for Emusic's survival, perhaps it's a simple case of too right, too soon. Perhaps not.

An Emusic timeline:

In 1998, as Goodnoise, the company struck licensing partnerships with peermusic, developed an open-source internet audio player (FreeAmp) to improve MP3 availability and began selling downloadable music by signing Frank Black, of Pixies fame.

Therein lay the first of their problems. Goodnoise was signing artists and indie labels to exclusive digital download distribution deals. In a similar situation to some iron-clad recording contracts still being created and signed, anyone who signed with Emusic were lawfully un-entitled to sign with anyone else who may come or MyPlay, anyone??

Their first ecommerce initiatives included Frank Black singles for $.99 and the entire album for $8.99. The album price was inarguably a bargain, but all end users were still not prepared to pay a dollar for a download by a niche artist.

In even more forward-thinking maneuvers,

Goodnoise founder and chairman, Bob Kohn, an expert on music licensing and intellectual property and co-author of the leading industry book, Kohn On Music Licensing, said: "This lawsuit is a smokescreen. It's not about piracy, but about the recording industry's fear that the growing market for downloadable music threatens the control over music distribution currently held by the major record companies. This action has nothing to do with the protection of recording artists and everything to do with the protection of the major record companies from legitimate competition. The RIAA is representing the interests of only their largest members in an attempt to maintain control over music distribution and restrict the ability of musicians and songwriters from releasing their music through distribution channels that are not controlled by the major record companies.

"Contrary to the RIAA's statements, the Diamond Rio promotes the growth of the market for downloadable music. We support the RIAA's efforts to stem the illegal distribution of music over the Internet, but this lawsuit is merely an attempt to hamper the market for legitimate, commercial downloadable music. The RIAA is clearly wrong on the law -- this case is merely a bullying tactic. The Home Recording Act of 1992 does not protect the copying of music from computer hard disks to devices like the RIO."

In 1999, Goodnoise showed their support by providing 'seemless integration' from the FreeAmp player into Diamond Multimedia's Rio player.Emusic also partnered with Adaptec, creator of several recordable-cd software programs.

However, in a show of industry support, Goodnoise partnered with mechanicals licensing monopoly, the Harry Fox Agency and added Rykodisc to its roster of licensed music.

Goodnoise also added big names like They Might be Giants and Gene Loves Jezebel to its featured artist promotional calendar, acquired licenses from several other indie labels and acquired a lesser-known - but very impressively named - ecommerce company, called Emusic.

1999 continued with a deal with Nordic, some Jazz labels, world music labels and public support for another desktop-based player - RealNetworks' Real Jukebox.

In yet another strategic move, Goodnoise acquired Internet music innovator, IUMA. IUMA began in 1993 as a way for unaffiliated musicians to promote and sell their music over the web. IUMA also hosted individual websites for any artist(s) interested.

"Music fans want choice, but they don't want complete chaos," said Gene Hoffman, president and CEO. "IUMA was the first site on the Web focused on music and was helping bands get on the Internet years before anyone ever heard of MP3. With IUMA, we see a great opportunity to offer Internet music fans a logical continuum of music. When fans are looking for music from established artists, they will find them through When they want to search for the undiscovered gem, they can browse the underground scene on IUMA."

Then on June 2, Goodnoise officially changed their name to Emusic, launched a new website, and began trading on NASDAQ. And, on the same day, Emusic announced a new licensing deal with King Biscuit Entertainment, which provided an initial delivery of 60 full albums from artists including America, Bachman Turner Overdrive, David Crosby, Greg Kihn, Iggy Pop, Jerry Lee Lewis, The Romantics, Kansas and Robin Trower.

Within two weeks, Gene Hoffman gave Congress a talking-to:

Gene Hoffman Jr., the 23-year-old president and CEO of Inc. (Nasdaq: EMUS) this morning will address the U.S. Congress' Joint Economic Committee during its first National Summit on High Technology. Organized by Congress to highlight, explore and advance issues that are important to this growing and critical sector of the US economy, the three-day Summit will consist of high-profile hearings with testimony from recognized leaders in the high-tech industry. Besides's Hoffman, speakers include the Federal Reserve System's Alan Greenspan, IBM's Lou Gerstner, Microsoft's Bill Gates, Sun's Scott McNealy, Novell's Eric Schmidt, and AOL's Marc Andreessen.

"New companies - and young people - can bring a fresh perspective to public policy issues and help them evolve toward a solution," said Hoffman. "Central high tech issues such as encryption illustrate how the private sector and the government need to continue their work on developing effective public policy so that the New Economy can continue to flourish."

That same week, Emusic sponsored an MP3 summit, featuring chairman Bob Kohn, as well as a benefit concert for another technology-conscious organization, the Electronic Frontier Foundation (EFF).

The Electronic Frontier Foundation is one of the leading civil liberties organizations devoted to preserving civil rights and promoting civil responsibility on the Internet. EFF works to ensure that the Internet remains a global vehicle for free expression and that the privacy and security of online communication is preserved. Founded in 1990 as a nonprofit, public interest organization, EFF is based in San Francisco. EFF maintains an extensive archive on civil rights and responsibilities, privacy, and free expression at their website.

At the end of the month, Emusic made another culturally imperative acquisition, when they bought some crucial catalogues from Stan 'The Record Man' Lewis on June 30.

Stan Lewis opened his first record store on June 22, 1948, with money he saved from selling newspapers. At twenty years old, he became a music industry pioneer by setting up a national independent distribution network and sponsoring radio shows on "clear channel" stations KWKH in Shreveport and KAAY in Little Rock, covering most of the country and advertising his records through mail order. Stan 'the Record Man' quickly became friends with the early entrepreneurs of R&B and rock & roll: Leonard and Phil Chess, the Bihari Brothers, Sam Phillips and his brothers. In addition to sales and distribution, Lewis also had an ear for talent and the ability to shape hits. In 1963, Lewis started Jewel Records and later Paula and Ronn Records. He also acquired a large collection of Chicago Blues material, including recordings released on the Cobra, Chief, Artistic, JOB and USA labels.

From the humblest of beginnings in a record store no larger than the size of a closet, Stan Lewis became the South's largest independent record distributor -- and Jewel Records became a leading independent label with dozens of national hits on the R&B and pop charts.

Several indie labels, including the legendary PopSmear and Epitaph also joined the Emusic fray. In mid-July, Emusic and Yahoo! announced a co-hosted exclusive web launch party featuring a live concert by Emusic darlings, They Might Be Giants. The concert would feature the new Emusic/download-only TMBG album

NEW YORK & SAN FRANCISCO - July 20, 1999 -- Inc. (Nasdaq: EMUS), the Internet's leading seller of downloadable music, is launching the first phase of its consumer advertising campaign, with billboards, network and spot radio and print ads in Internet magazines and music trades. Using "EMusic: The Way To Download" as its tag line, the campaign is breaking in major music markets this week, with TV and additional print scheduled for the fall. Scheyer/SF is handling all creative and media placement for the $6-$10 million account.

July 21, 1999 Inc. (Nasdaq: EMUS), the Internet's leading seller of downloadable music, today announced it has entered into a licensing agreement with Thomson Consumer Electronics Sales GmbH for an extensive portfolio of patents covering the MP3 (ISO MPEG Audio Layer 3) file format. The MP3 format was developed by the Fraunhofer Institute of Munich, Germany, and has become the de facto standard for downloadable music on the Internet. The announcement was made in conjunction with the Jupiter Plug-in Conference and the Digital Club Festival, two major music industry events being held here this week.

After adding punk and soundtracks, as well as partnering with UK label, Crunch, Emusic widened it's player capabilities by partnering with AOL's Spinner and Winamp branded MP3 players. The deal entailed cross-promotions in the players, as well as co-branded websites. A deal with Yahoo! Digital followed, offering the same search, sample and buy functionality offered at Emusic, on the Yahoo! site. New MP3s included Frank Zappa, Morphine, and Louis Armstrong, among thousands of others. Emusic's new baby, IUMA would also have select representation on the Yahoo! site.

In August, a partnership with the now-essentially-defunct Wired Planet (now owned by provided indie music fans a 24-hour streaming radio format of their favorite Emusic indie artists. For example, 'Radio They Might Be Giants' featured music performed and selected by the group. Purchasing still available through the Emusic site was to be the two partners' simulation of terrestrial radio and offline retailers.

In September, Bush debuted a new single exclusively via Emusic (only to sell it through them, later) and Emusic continued its high-profile appearances and digital evangalism with a Hewlett Packard co-sponsored digital workshop at CMJ Music Marathon '99, the annual 'college radio' conference in New York. The workshop offered lessons on ripping, encoding, downloading and burning 'legitimate' MP3 files. The partnership proved fortuitous for a future HP PC promotion, featuring an offer for 10 free tracks from Emusic, with purchase of their newest HP Pavillion PC.

The end of 1999 realized a strategic partnership with category-killer-hopefuls,, an acquisition of,, and

2000 was the year the internet bubble burst. But Emusic plugged away. They had the good fortune to be hosting downloads by 8 Grammy nominees, They Might Be Giants - who were 1999's most-downloaded act and a partnership with ESPN. Emusic also launched an affiliate program, using Be Free, one of the premiere affiliate-program provider services.

Emusic also jumped on the 1999 spend, spend, spend style of promotions:

February 11, 2000 -- Inc. (Nasdaq: EMUS), the Internet's leading seller of downloadable music, today launched its MP3 "EarGear" promotion, offering free Logitech SoundMan® X2 computer speakers and Jensen digital audio headphones to customers who purchase downloadable music from

Like many web companies before and after, Emusic was shortsighted in their cost-per-customer model. This promotion required no more than $.99 worth of music to be rewarded with a set of $14.99 headphones, and a purchase of just $25 were rewarded with a Logitech SoundMan X2 high-fidelity speaker system, valued at almost $100. Like so many companies, promotions like these were intended to win long-term customers. Hindsight shows that killer promotions often succeeded in winning over promotion-only customers. Who knows what Emusic's results were.

Elvis Costello signed on. Ian Anderson, of Jethro Tull fame, brought his solo album to the virtual table and Emusic's IUMA announced a new contest - MusicOMania - a best-college-band search sponsored by, MusicMatch, and The four finalists would be awarded an opportunity to win cash and prizes valued 'in excess of $25,000' by opening for Primus at the Fillmore in San Francisco. And Emusic opened a New York office, with a special welcome by the mayor. Go Rudy!

With a powerful new feature supported with the help of RealJukebox, FreeAmp and the EMusic Player, Emusic offered a one-click album download option.

"While others concentrate on adding complex security restrictions to digital music, EMusic is focused on making it easier for consumers," said Gene Hoffman. "Despite what you hear about piracy and lawsuits, downloadable music is really all about providing a more convenient way for fans to manage and listen to their music collections. This new EMusic feature is a perfect example of how we are helping to make the digital music experience faster and more intuitive. "We expect digital downloading to be the predominant way that fans discover and enjoy their music in the next decade -- especially with the increased popularity of broadband Internet access and the proliferation of portable MP3 hardware devices that can hold the musical equivalent of hundreds of CDs."

New partnerships were announced with artists, Violent Femmes and Tom Waits and labels, Shanachie Entertainment, Sire Records and Kramden Enterprises and on April 3 Emusic announced they had sold their millionth download!

Emusic could do no wrong as they announced a 118% increase in downloadable music revenues; they entered into another promotion with Hewlett Packard - offering free music through their HP Jornada 540 Series Color Pocket PC, the acquisition of a World music label, sponsored the San Francisco Music Festival and let their content sites start making some interesting strategic moves, as well. IUMA launches its own affiliate program, loans Yahoo! it's photo archive and a partnership with BestBuy to facilitated access to more music paraphernalia. Add to that, a's partnership with Microsoft Windows Media website and

IUMA took a stand and started circulating its own A&R tipsheet in the wake of success with previous IUMA-successful acts.

Alas, Emusic took the bait again and stepped into the legendarily expensive promotion arena, when they offered a free Creative Labs Nomad II MP3 Player to customers who purchase $50 worth of music. The NOMAD's street value was over $200. Then again, maybe Creative ate the expense.

Emusic signed partnership deals with offline distributors, NAIL & KOCH and announced strong revenues.

Until June when Emusic had to take it on the chin.

June 14, 2000 -- Inc. (Nasdaq: EMUS) today announced it expects to report revenue growth for the quarter ending June 30, 2000, of approximately 20 percent over pro forma revenue reported for the quarter ended March 31, 2000 -- as well as a loss per share lower than current Wall Street consensus estimates.

Emusic also announced additional cost-cutting measures, which in this climate almost always means layoffs.

These cost-saving actions include an immediate reduction in headcount of approximately 20 percent, reductions in marketing spending and other operational savings. Following today's reductions, the company now has approximately 180 employees in its Redwood City, California headquarters and Chicago, New York, Los Angeles and Nashville offices.

More label deals, another HP promotion, Wendy's and RollingStone join hands, IUMA offers revenue sharing and Emusic announces its new Digital Subscription service. The press release actually named Emusic's nemesis:


Benefits of EMusic Unlimited: You've Never Seen a Record Store Like This
In contrast to EMusic's standard pay-per-download option, EMusic Unlimited is an additional service designed for the serious music fan. For as little as $9.99 a month -- less than the price of a new CD -- EMusic Unlimited members receive:

*Unlimited access to all of EMusic's more than 125,000 tracks from established artists across every genre -- with thousands of new tracks added every month.
*The confidence of knowing that artists will be compensated for the music downloaded.
*The ability to download any track an unlimited number of times, without the hassle of going through a purchase process.
*A simple, sleek and efficient way to download either singles or full downloadable albums.
*A weekly e-mail guide written by EMusic's editors, featuring hand-picked recommendations and information about new releases.
*Access to exclusive MP3 tracks and events from high-profile EMusic artists, which won't be available to non-subscribers.
*Priority technical support and customer service.
*Reliable MP3 music delivery -- no interrupted connections or incomplete downloads.
*High-quality tracks that don't suffer from poor encoding or imperfections.
*Open, un-encrypted MP3 files that can be used with any software or hardware player that supports MP3. The files can also be burned to CD-R for playback on a standard CD player.

Pricing & Availability
Fans can sign up now for EMusic Unlimited by visiting Pricing is tiered depending on a single month, three-month, or full year commitment:

* $19.99 for a one-month subscription
* $14.99 per month for a three-month subscription
* $9.99 per month for a 12-month subscription

This move was just the beginning of the battles against their new nemesis, Napster. Napster had sprung up on the scene and was already offering the best subscription service available. Napster had access to all the major labels' content, all the cool rarities and sometimes-even sneak-previews, seemingly direct from a studio mixing board. For selection and price on just the music, they had Emusic beat. Napster was free!

While Emusic plugged away with new label deals and their other sites went off in their own promotional direction, Emusic and Gene Hoffman were getting more and more political. When Universal Music launched the bluematter trials - their own, endorsed digital download system -- Emusic's was among the first to join the affiliate program.

Songs in the bluematter format come with enhanced multimedia content, such as biographies, photographs, lyrics and credits. bluematter tracks span a breadth of genres from rock to pop to classical. Initially, will offer 60 tracks from a variety of Universal Music Group artists including Blink 182, Live, 98 Degrees, Marvin Gaye and SMASH MOUTH, with more tracks to be added weekly as the trials roll out.

The bluematter format allows consumers to introduce friends to new music through "superdistribution." Consumers can click the "e-mail a friend" button on their music player and send legal music references to friends via e-mail. Friends can listen to a sample of the song and opt to purchase the full track in the bluematter format.

The year continued with IUMA's 'Name Your Baby' contest, another Emusic and Yahoo! partnership, partnering with ESPN to launch an X games website, a partnership with Supertracks to make Emusic tracks available through other online music retailers, a Madonna contest, a partnership with Ticketmaster, and more major-label artists coming on board including John Hiatt, Dan Hicks, Ricky Skaggs, Slash, Merle Haggard, Tiffany, and Southern Culture on the Skids.

In November, Emusic offered a 30-day free trial for their subscription service:

"Most industry analysts and insiders agree that paid-for subscription services will be the future of downloadable music, even Napster," said Gene Hoffman. "For avid music fans, EMusic Unlimited offers an exceptionally compelling way to download over 130,000 MP3s from popular, established artists today . By offering free, no-risk trial subscriptions, we want even more of these fans to experience the advantages of a legitimate music download service -- one that fairly compensates musicians and labels without sacrificing consumer convenience or low-cost."

But just before Thanksgiving of 2000, Emusic got serious. (Nasdaq: EMUS) today announced it is launching an initiative designed to prevent the illegal distribution of EMusic songs using the Napster service. Beginning today, EMusic will use internally developed software that includes innovative "acoustic fingerprinting" technology to continually identify songs on the Napster service that infringe on the rights of EMusic's artist and label partners.

Prior to taking this step, EMusic initiated discussions with Napster and proposed a consumer-friendly way to stop the unauthorized distribution of songs licensed to EMusic. Despite EMusic's efforts, Napster has refused to consider technical solutions that would prevent users from accessing and downloading EMusic content. Napster has suggested only one option; to provide the names of Napster users who are distributing EMusic tracks so their accounts can be blocked.

"Over the past several months, EMusic has continually offered to work in good faith with Napster on this issue," said Gene Hoffman, EMusic president and CEO. "We have proposed a number of viable solutions -- including detailing to Napster a fairly simple technology that would effectively block the unauthorized sharing of our music files without disrupting Napster users' accounts. Napster's unfortunate and inflexible response has been that EMusic's only course of action is to request that offending users' accounts be cut off completely. Although we feel that Napster could easily implement a more consumer-friendly solution, we will begin supplying this information on an ongoing basis."

Emusic followed this mild action with both barrels blazing when, on December 19, Emusic announced that they, and several of their label partners, were filing for copyright infringement against their other nemesis,, which had already had its share of legal troubles that year.

The complaint was initially filed by EMusic and six of its partner-labels: Fearless Records, Fuel 2000 Records, Gig Records, Invisible Records, SpinART Records and Victory Records.

"Although has entered into settlement agreements with the five major record labels, they have chosen to ignore their infringing actions with respect to independent record labels," said Gene Hoffman, EMusic president and CEO. "EMusic strongly supports the rights of music fans to have access to convenient, inexpensive digital music -- as well as the rights of all labels and artists to choose how and where their music is used."

This was the indies' first public outcry against the various, free MP3 facilitators or providers. Though some may argue that Zomba was the first indie to join the protests - their 'indie' cred is questionable. And the indies were the community who was always attributed to be in support of systems like Napster, Gnutella and

Emusic has made valiant efforts to succeed and succeed, always maintaining integrity and loyalty to copyrights and traditional licensing processes. Unfortunately, this integrity could not offer a worthy competitor to the websites and servers who - for whatever reason - opt not to go the traditional route. And Emusic's noble efforts eventually just made them seem whiney and not the 'white knights' that they should have been.

The layoffs that Emusic announced may be their salvation. Only time will tell. Nonetheless, these are smart folks with a smart, new, streamlined business model. Even at their most extravagant, the excesses of Emusic were all in a day's payroll for some of the dead dot-coms. If anyone can rise above and reinvent themselves, it's Emusic. Keep your fingers crossed.


Adaptec -
BestBuy -
Creative Labs -
Crunch -
Diamondmm/S3 - -
Emusic -
Epitaph -
Fearless Records -
FreeAmp -
Fuel 2000 Records -
Gig Records -
Gnutella -
Home Recording Act -
HP -
Invisible Records -
Koch - -
Microsoft - -
MusicMatch -
MyPlay -
Napster -
Nordic -
peermusic -
PopSmear -
RealNetworks - -
Rykodisc -
Shanachie Entertainment -
Sire Records -
spinART -
Spinner -
Supertracks -
TMBG - -
Universal -
Victory Records -
Winamp -
Yahoo! -

Related MusicDish e-Journal Articles:
» Ex-Post vs. Ex-Ante: EMusic Takes Another Approach to Napster (2000-11-21)
» When Getting Your Subscription Doesn't Mean Newspapers or Magazines - The New Trend in Digital Music Services (2000-07-25)
» EMusic Takes the Mantle of the MP3 Revolution - Interview with Gene Hoffman, President & CEO (2000-03-09)
» EMusic acquires, content remains King (1999-11-30)
» BMI and EMusic Form Partnership (1999-09-21)
» Converts's Library (1999-07-27)
» GoodNoise & Rykodisc (1999-02-11)

Related News from Mi2N:
» EMusic Announces Corporate Restructuring
» EMusic Features 13 Grammy Nominees In MP3
» They Might Be Giants, Elvis Costello & Phish Make The Most Out Of Authorized MP3 Download Sales
» & Its Independent Record Label Partners File Copyright Infringement Complaint Against MP3.COM
» Announces Agreement With America's Music Publishers To Add Full-Song Streaming To Its Digital Music Subscription Service
» Emusic Targets Napster With Effort To Halt Illegal Distribution Of Emusic Mp3s

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