MP3.com: Sonic Boom on Wall St.
After slightly more than a year in the Internet music business and with no proprietary claim on the technology it helped popularize, MP3.com Inc. went public Wednesday and immediately became a multibillion-dollar force in the industry.
One of the beneficiaries, perhaps surprisingly, is Thomas Spiegel, a controversial figure from the savings and loan crisis.
San Diego-based MP3 is the most popular Web site for people seeking music to download free or nearly free. It hopes to make money by splitting music revenue down the middle with bands. So far, however, the bulk of the nearly $700,000 it had in sales for the first three months of this year came from ads.
After the investment banks underwriting the sale of 13 million shares more than doubled the initial price to $28, the stock exploded to open for public trading at $92, then spurted to $105, briefly giving MP3 a market value of about $6.9 billion, just south of EMI Group. The stock (ticker symbol: MPPP) closed at $63.31 on Nasdaq.
“They are the beneficiary of the right name, the right dot-com address and the right time,” said Forrester Research analyst Mark Hardie. “The marketplace is . . . heated with theoretical expectations.”
The debut ranks among those of E-Toys, MarketWatch.com and other Internet IPOs that rocketed in their first day of trading. It made a billionaire of 38% owner and Chief Executive Michael L. Robertson, 32, a former computer programmer who has become the scourge of the music industry establishment.
Others profiting are Silicon Valley venture firm Sequoia Capital, Cox Interactive Media and singer Alanis Morissette.
Management company Atlas/Third Rail, which manages Morissette, among others, got warrants to buy 658,000 common shares at 33 cents each in exchange for making MP3 a 1999 summer tour sponsor, according to regulatory filings. At Wednesday’s closing price, that’s more than $40 million in profit, at least on paper.
One of Atlas’ three partners is Charles Roven, and another affiliate is Roven’s cousin Spiegel, one of the most controversial executives in the nation’s savings and loan crisis of the 1980s and early ‘90s. Morissette, Roven and Spiegel family trusts are listed as investors in MP3.
As head of the now-defunct Columbia Savings & Loan in Beverly Hills, Spiegel was a high-yield, or “junk bond,” customer of former Drexel Burnham Lambert executive Michael Milken.
Spiegel was the target of a 55-count indictment in 1992, facing accusations that he looted Columbia to support a luxurious lifestyle. A jury acquitted him two years later. In 1995, he settled a long-standing civil dispute with federal regulators by agreeing to pay as much as $275,000 in restitution, a fraction of the $40 million the government had initially sought.
Spiegel did not return calls seeking comment. Morissette could not be reached.
When MP3.com approached Roven’s company about Morissette, Roven said he brought in Spiegel in exchange for an equity stake in MP3.
“I suggested we should bring in someone who was like a specialist” in non-cash deals, Roven said. “We introduced him to them. They really liked the way he worked.”
So much so, according to MP3.com spokesman John Lenihan, that Spiegel went to work for the company. Lenihan said Spiegel has acted as an “in-house” consultant for MP3.com for the last few months and is now employed by the company as an investment strategist.
Asked whether the company had any concerns about Spiegel’s past, Lenihan said, “We did our due diligence on Tom and we’re satisfied.”
Robertson has come under fire from the music business.
In an interview last year, he defended his site’s offering hints to consumers about ways to circumvent industry efforts aimed at stopping digital music piracy.
“Theft is a cost of doing business on the Internet,” the Redwood City, Calif., native said. “I know the giant companies have spent more than a year trying to develop a universal encryption and ‘watermark’ security system, but I guarantee you the minute they unveil the thing, some hacker will figure out a way to get around it.”
Web traffic to the site, a key measure for valuing Net stocks, has soared, especially since the November introduction of the Rio portable player for MP3 downloads. More than 6 million visitors come to the site, one of several offering free music, every month, according to the company.
“Our Web site contains over 100,000 songs from over 18,000 artists,” the company’s filings say.
For the traffic, as well as impeccable timing and the ability to generate buzz, analysts give MP3.com good reviews.
“They have overcome one of the largest obstacles you can have, which is: How can you get a couple million people to come to your sites on a regular basis?,” said Mark Mooradian of Jupiter Communications.