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Seeking to Reduce Costs, ARTISTdirect Reorganizes Into Five Business Groups
By Margee Fagelson
(more articles from this author)
2001-01-21
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Los Angeles, CA, January 18, 2001 -- ARTISTdirect, Inc. (NASDAQ: ARTD) today announced plans to reorganize the company into five distinct business groups and develop strategies to realize the potential value of each business. By reorganizing into distinct lines, focusing on core activities and aggressively reducing costs, the company also announced that it expects to exceed its previously disclosed plans to reduce its cost structure.

Unfortunately, part of the cost-restructuring meant pink slips. The sad truth is that this was not the first damage ARTISTdirect has sustained. The good news is that they have been able to hold on a lot longer than most other companies. In the last few months, Riffage.com died and even the quiet strongholds of Listen.com and LAUNCH.com had a headcount belt-tightening. To count out ARTISTdirect now would be a mistake. If anyone can rise above this, it's AD.

ARTISTdirect was formed in 1998 and quickly rose to the top of the news charts. Marc Geiger (of Lollapalooza fame, for one) teamed with Don Muller to form a new sort of music company.

ARTISTdirect- a triple-faceted entertainment venture combining the ARTISTdirect booking agency, a record label called Kneeling Elephant, and the award-winning online resource called The Ultimate Band List to form the framework of a new kind of music company. ARTISTdirect functions as a total music entertainment company that will develop artists globally by providing a direct connection between artist and consumer through a networked system of concert touring, electronic marketing and distribution via the Internet.

The ARTISTdirect agency already had a forward-thinking roster of clients including Pearl Jam, Beastie Boys, Beck, Soundgarden, Alice In Chains, Rage Against the Machine, Red Hot Chili Peppers, and Foo Fighters among others. All share the ARTISTdirect vision of the music entertainment company of the future.

ARTISTdirect also had an Internet music staple, already in their stable, The Ultimate Band List, where any band, anywhere, anyhow could put a link to their information. For a time, UBL and competitor, All Music Guide, were the one-stop information sources for music. Even Atlantic Records selected UBL as their web promotions tool in August 1998.

The UBL search function will be a prominently featured co-branded service on the Atlantic website. As a result of this exciting new agreement, visitors to atlantic-records.com will be able to access the thousands of Internet fan sites devoted to Atlantic recording artists. Search results will be presented in a separate browser window, which will include special banners with up-to-the-minute information on Atlantic artists and events.

UBL was so popular, it was nominated for a '99 Webby in the category of Music, competing against bobdylan.com, MP3.com, SonicNet, and Spinner.com.

By June of that year, faith in ARTISTdirect was supported by a $15 million investment from Chase Capital Ventures, Bowman Capital, Flatiron Partners, Cassandra Capital, Psilos Group Ventures and Constellation Ventures, part of the Bear Sterns Asset Management Group.

"This investment will allow ARTISTdirect to expand our leadership in online music content, community, and e-commerce, as well as aggressively move forward with our plans to become the ultimate digital music distribution hub," said Marc Geiger, President of ARTISTdirect.

"No one else has demonstrated the Internet commerce experience and music industry street credibility to succeed like ARTISTdirect," said Bob Greene, General Partner of Chase Capital Partners. "We are impressed with ARTISTdirect's leading client roster as well as the way they utilize the assets of UBL.com and iMusic to position themselves to discover, promote and distribute the music of tomorrow's stars."

Seems that since the Internet began, we've been waiting for the Internet to 'break a band' and companies like Farmclub.com are making an effort while companies like Tonos and Garageband are truly dedicated to this future. But ARTISTdirect was there way back when. In July 1999, ARTISTdirect launched a feature they called "Born on the World Wide Web," where anyone who was interested and confident could submit their music and a bio to be judged by a panel of experts and ARTISTdirect's fans. ARTISTdirect laid claim to this being the first multi-genre, global, online talent search. Grand prize was a showcase at the first annual ARTISTdirect awards show.

Some see the trouble as having started in September 1999. The market was ripe, tech companies could do no wrong, and with a stellar staff, and a CEO who actually had real-world-music experience and a history of the Midas touch, ARTISTdirect decided their time had come and they registered to file their initial public offering.

Encino, CA - September 22, 1999 - ARTISTdirect, Inc. today announced that it has filed a registration statement with the Securities and Exchange Commission for a proposed initial public offering of its Common Stock.

Additionally, in 2000, ARTISTdirect received compensation for strategic partnership agreements with Universal Music Group, BMG Entertainment, Sony Music Entertainment and Warner Music Group, for which it has received criticism.

ARTISTdirect was founded on the promise of cooperation from an infamously uncooperative community: superstar-recording artists. In order to proceed with the business model proposed, partnering with the major labels was not only justified, but imperative.

At the same time, Yahoo! acquired a stake in the company and ARTISTdirect gained access to another rising Internet music company, GetMusic, which was owned by BMG.

Everyone wanted a piece of ARTISTdirect, including Cisneros Television in Latin America, Qpass - who signed on to be the site's e-commerce solution - and Disney's baby, Go.com who signed a deal to share content to encourage traffic between their Wall of Sound site and ARTISTdirect.

ARTISTdirect was doing so well, they acquired up-and-comer, Mjuice.

Encino, CA - March 8, 2000 - Online music company ARTISTdirect, Inc. today announced that it has signed a definitive merger agreement to acquire Mjuice.com, Inc., the Web's largest secure-MP3 distributor. The acquisition furthers ARTISTdirect's goal of delivering its users the best in digital music by providing them with access to Mjuice's MP3-based secure digital distribution platform and broad catalogue of over 30,000 music tracks from more than 70 record labels. Additionally, Mjuice's employees will join the staff of ARTISTdirect, including information technology, product and music staff who will help integrate emerging digital distribution technologies across the ARTISTdirect Network. Financial terms of the deal were not disclosed.

The IPO began with 5 million shares, originally valued at $12 a share. ARTISTdirect announced their first quarter results for 2000. Some highlights:

* Net revenue of $4.5 million, up 165% from $1.7 million in Q1 1999.
* Online revenue of $3.8 million, up 173% from $1.4 million in Q1 1999.
* Advertising revenue increases to 40% of total revenue.
* Reached agreement to acquire Mjuice.com, a leading downloadable music site.
* Initiated Yahoo! distribution and marketing relationship.
* Cash and cash equivalents of $128.7 million at 3/31/00.

Marc Geiger commented, "Our strong first quarter results demonstrate the soundness of our business model, combining great revenue growth with well-managed operating expenses. We believe that our unique combination of comprehensive music resources and artist-specific channels provides the most compelling music experience on the internet today. At a time when the music industry is facing unprecedented challenges, we expect to be a leader in developing new business models to address the opportunities that lie ahead." Not completely home free,

At the time of ARTISTdirect's IPO, several press reports indicated that a substantial portion of the proceeds of the IPO might be spent in a rescission offer relating to the issuance of options and shares in violation of securities laws. As a remedy, ARTISTdirect made a rescission offer to the persons who received the shares or options.

Los Angeles, CA, May 15, 2000 - ARTISTdirect, Inc. (Nasdaq - ARTD) today filed a Form 10-Q with the SEC for the quarter ended March 31, 2000. As part of that filing, the Company revised its previously announced financial results to reflect a one-time, non-cash effective dividend in connection with the adjustable conversion of the Company's Series C Redeemable Preferred Stock upon completion of its initial public offering ("IPO") on March 31, 2000.

Net loss from operations was not affected by the non-recurring, non-cash effective dividend. Net loss attributable to common shareholders and loss per share includes the impact of the effective dividend, in accordance with generally accepted accounting principles. As a result, pro forma net loss per share of $0.39, as previously announced, was revised to a pro forma net loss per share of $1.25. Results of future periods will not be affected as all of the Company's redeemable preferred stock was converted to common stock in connection with the IPO.

ARTISTdirect kept busy. Special fan promotions with Metallica, Mandy Moore, Matchbox Twenty, N'SYNC, KDLang and Bjork, as well as tour sponsorship, official tour website hosting, and a new partnership with RadioWave.com kept the staff on their toes. The partnership with RadioWave meant that ARTISTdirect now had another desirable feature to provide - Internet radio stations!! Not just any radio station, but branded, personalized radio which also provided news and information about users' favorite artists. ARTISTdirect was fast becoming a one-stop information, entertainment and shopping destination.

"Born on the World Wide Web" hit its sophomore stride in 2000 and UBL had information on 100,000 artists.

Napster's arrival on the scene merely inspired ARTISTdirect to do more of what they already did well. Spinal Tap announced its answer to Napster in Tapster. The site would be built and hosted by the AD network in conjunction with MGM and would also provide merchandise, available for purchase, all in partnership with Spinal Tap's official website.

Unfortunately, ARTISTdirect was spinning great ideas in a market that was fed up with them. Like so many music tech companies before them, AD was finding it hard to sustain.

Here we are in January 2001 and AD has had to let go of some staff. It can't be easy to go to work, but they will keep forging ahead. It's not difficult to imagine some major media company just buying them outright. With all the assets and technology available, any major company looking to leverage their online presence would be wise to look in ARTISTdirect's direction.

The five new companies created out of the restructuring are:

1. ARTISTdirect Media Group, comprised of the ARTISTdirect online music network, including ARTISTdirect.com, the Ultimate Band List (ubl.com), and more than 120 official artist stores and sites operated by the company.

2. E-Commerce Retail Services Group, which sells merchandise, CD's, tickets and digital downloads.

3. Digital Media Distribution Group, which is developing an entertainment jukebox that will feature on-demand audio streaming and downloads. ARTISTdirect is in negotiations with major record labels for licenses to launch the streaming and downloading application with ARTISTdirect content embedded to provide a comprehensive user experience.

4. Talent Agency and Live Event Group, which consists of an agency that represents such artists as the Beastie Boys, Beck, Red Hot Chili Peppers, Foo Fighters and others, as well as ownership in concert tours and live events, such as Sno-Core, Ritual and Fan Nation.

5. Record Label and Content Production, detailed plans for which have yet to be announced.

Perhaps they were too soon to market, or perhaps it's the same old music story. If none of the other kids in the neighborhood have heard of you, you're still cool and worthy. But as soon as you're a household name, your credentials (often mistakenly) are questioned or reviled. Just because ARTISTdirect was successful is no reason for the market or their fans to desert them now. They had all the elements necessary to succeed, except perhaps, too much visibility. But never fear, somehow, some way, AD will bounce back. I'm sure of it.

Linkography

All Music Guide - www.allmusic.com
ARTISTdirect - www.artistdirect.com
Atlantic Records - www.atlantic-records.com
BMG - www.bmg.com
Cisneros Television - www.cisnerostv.com
Disney - www.disney.com
EMI - www.emigroup.com
GetMusic - www.getmusic.com
Go.com - www.go.com
iMusic - www.imusic.com
LAUNCH - www.launch.com
Listen.com - www.listen.com
MGM - www.mgm.com
Mjuice - www.mjuice.com
MP3.com - www.mp3.com
Napster - www.napster.com
Qpass - www.qpass.com
Sony - www.sonymusic.com
Tapster - www.tapster.com
Tonos - www.tonos.com
Wall of Sound - www.wallofsound.com
Warner - www.wbr.com
UBL.com - www.ubl.com
UMG - www.umusic.com
Yahoo! - www.yahoo.com

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» ARTISTdirect Reorganizes Company Into Five Distinct Business Groups


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