Look Who's After Napster
It's showtime, and pierced body parts are everywhere on the Universal Studios (VO) back lot. Inside the warehouse-size soundstage where Universal once filmed the ABC sitcom "Coach," technicians are hovering by a computer linked to a 30-foot-wide TV screen, where videos flash images of the rock group Green Day as it performs its hit song Minority on the stage. Next on the program come chart-climbers No Doubt and Eve Six, playing to the cameras and the 200 head-bopping kids Universal shipped in to provide a live audience.
TALENT SCOUT. Forget what you have read about music on the Internet being the creation of college dropouts working from cramped offices. For Universal Music, the music industry's biggest player, fighting the Internet music wars starts with a finely honed TV show. With this kind of firepower, Universal hopes to drive the music Net surfers who have been captivated by Napster and MP3.com (MPPP) lately back into the arms of the majors.
An estimated 1 million viewers watched this new millenium American Bandstand when parts of it aired on Sept. 18 on the USA cable network. But the real payoff will come if Universal can lure a large number of music lovers to Farmclub.com, which is liberally promoted throughout the show. At Farmclub.com, they can see video-streamed shows and rock videos, hear songs by unknown groups, check in on music news, and chat with fellow music fans. The idea, down the road, is to win over a sizable chunk of the teen and Gen-X audience, then launch a subscription service on the site, allowing music fans to download all kinds of music for a monthly fee of around $15.
The site is also on the lookout for hot new talent and dangles the promise of a recording contract to attract unknown artists to post their music with them online. And make no mistake--Universal has the likes of Napster in its sights. "Can Napster offer a TV show and recording contract?" asks Jimmy Iovine, the onetime rock producer who heads Universal's Interscope Records label and is chairman of Farmclub.com. "You have to be a large media company like ours to compete in this arena."
From its launch in February, Farmclub.com has clearly been a big media play for the Net. Seeded with $25 million from Universal Music's parent Seagram Co., Farmclub.com paid plenty to get into the business. It sought out the USA Network, nearly 46% owned by Seagram, and took the unusual step of buying up an hour of airtime. Paying $100,000 a week, it secured the slot immediately following the wrestling show WWF Raw is War, cable's top-rated program and a big draw with the same young male demographic that Farmclub.com wants. It pays an estimated $250,000 a week for the show, which leans heavily on talent from one or more of the Universal labels, including the likes of rapper Eminem on Interscope and Def Jam's LL Cool J.
Like most of the major labels, Universal isn't exactly sure how the Internet business will play out. Still unsure of how to protect its music from piracy, Universal and other music majors instead have battled Napster in court, sullying their image among young music lovers. Universal recently won damages that could rise to $250 million against MP3.com for illegally using its music. The company has taken tentative steps to allow single tracks from artists like Blink 182 and 98 Degrees to be downloaded from authorized sites. But it stopped short of allowing large-scale downloads.
Can Farmclub.com ever become a major player on the Internet? After initial strong growth, traffic to the site has leveled off and still badly trails Napster, MP3.com, and even MTV.com (chart, page 92). Worse yet, it lost its powerful lead-in when Raw is War left the USA Network (USAI), migrating to Viacom's (VIA.B) Nashville Network. Instead, USA has said it will replace the wrestling extravaganza with a hodgepodge of movies and specials. "Creating a brand in this space isn't easy, and I'm not sure they're anywhere close yet," says Gene Hoffman Jr., CEO of rival Emusic.com Inc. (EMUS), which offers licensed music from Universal and other music companies.
HEDGING ITS BETS. That doesn't seem to faze anyone at Farmclub.com--at least not yet. Early on, it hedged its bets by also starting a Farmclub.com label, which has signed six artists. The label's hottest group, Sonique, was signed not via the Net but after being discovered in a London nightclub. Still, the 500,000 CDs Sonique has sold will come in handy. Despite advertisers like Rolling Rock beer and Sony Corp. portable electronics, the show and the site are both losing buckets of money, say insiders. And Universal intends to spend more. To increase its reach, the company has bought time on USA for a midnight Saturday show. And it's planning a European version of Farmclub.com in conjunction with France's Vivendi, whose pending purchase of Seagram is expected to close in the next few months.
For now, the folks at Farmclub.com intend to keep the volume up high on their combination TV show, music label, and Web site. They're constantly testing hot new groups, like the hard-edged Atlanta band Minus, which stomped its way through a recent taping of a Farmclub.com show but left without a deal. And the label intends to release the first CD by a group it found on the Net, a ballad-singing duo called Fisher. Its debut wasn't on Farmclub.com but on MP3.com, says lead singer Kathy Fisher; Universal approached her manager to post the song on its newly launched site. And Fisher's CD, True North, won't be released on the Net, either, but in record stores around the country. After all, this is the music business, where profits still rule, and the Internet doesn't yet pay.
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