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But the field has become more crowded, with powerhouses like Real Networks and Microsoft jumping in. They've helped broaden the number of active users of jukeboxes in the U.S. to more than 5 million, but that left MusicMatch with only a 28% share, compared with 67% for Real. What's more, Napster, Scour, and other file-sharing services loom as potential new heavyweights -- at least in the unlikely event they survive legal attempts to shut them down. So Mudd, 38, is spinning a new tune: On Oct. 3, MusicMatch released version 6.0 of its jukebox, an update that expands the company's scope beyond software and makes it the music company Mudd originally envisioned. Version 6.0 offers a radio service tailored to each user's tastes. If you want to listen to modern jazz pianists like Keith Jarrett and Herbie Hancock, for instance, enter their names, and MusicMatch will spin a series of tracks that other fans of Jarrett and Hancock enjoy. "Until now, we've simply recommended artists and CDs," Mudd says. "Now it's more compelling: Just push a button and hear the music." PREFERRED PLAYER. Eventually, the CEO hopes personalization will evolve into a true music-on-demand audio service. When that could happen is unknown. It depends on the major record companies, which have been slow to embrace online distribution of music. One step in that direction: BMG Entertainment on Oct. 10 began selling downloads of more than 100 singles and albums, and MusicMatch was selected as the preferred player to support this content. If it proves popular, however, streaming audio could drive MusicMatch's growth. This year, the private company will book revenues of just more than $10 million, most of it earned from upgrades to its jukeboxes that offer faster encoding and recording of CDs. The basic upgrade is $19.99, which about 5% of MusicMatch's active users have forked over. Next year, Mudd reckons revenue could grow many-fold as advertising, e-commerce, and subscription fees kick in. The odds of success are hard to predict because many factors remain uncertain. The royalties that Webcasters like MusicMatch must pay the record companies for streaming personalized radio over the Net are still being negotiated. If the rates are too high, MusicMatch will be at a disadvantage relative to its deep-pocketed rivals. BRUTAL COMPETITION. But Mudd is optimistic. He says negotiations are in the final phase, and he's confident the rates will "support a realistic business model." That's because advertising fees for personalized music services will command top dollar, he says, since marketers will be able to precisely target audiences. Even so, the competition will be brutal. Count on a slew of companies -- from record retailers to major labels to Internet service providers such as Yahoo! and AOL -- to join the fray. "The real race is to become the most dominant site people go to listen to music, because that's where we will buy our music and other goods," says Phil Leigh, an analyst at Raymond James & Associates, an investment- and financial-planning firm in St. Petersburg, Fla. MusicMatch is betting that it can leverage its existing customers to build a viable business. Although Real has more than twice MusicMatch's 5 million active users, MusicMatch leads in the total amount of time the jukeboxes are open on PCs, according to Media Metrix. WATCH MY LISTENING. What's more, MusicMatch is unique in how it is employing these users to personalize its recommendations. Since last October, about half its active users have agreed to allow MusicMatch to monitor the music they listen to. This has created a database of hundreds of millions of "play events" that MusicMatch analyzes to recommend songs other users are likely to enjoy. MusicMatch's rivals have yet to adopt this "social filtering" technique, which is similar to the one Amazon.com uses when it advises customers what books other customers are buying. Launch.com and others compile user ratings but don't dissect actual listening patterns. Real uses recommendations from partners such as ArtistsDirect and Home Music Guide. And on Sept. 13, Microsoft spent an estimated $65 million to buy MongoMusic, an upstart company with technology that analyzes the tempo, instrumentation, and style of music a user is listening to and generates recommendations for similar artists. MusicMatch's competitors may also have a harder time becoming direct distributors of music. "Real and Microsoft distribute content for the labels, so there would be a conflict if they used personalization to get into their own content-distribution business," says Mudd. "HOW DEEP"? Rob Grady, director of consumer-product marketing at Real, disagrees, saying it has a symbiotic relationship with content providers. "We have deep partnerships with all the labels and media companies, and help them connect with a huge audience," he says. Real distributes material from more than 100 content partners, including CNN, ABC News, and 2,500 radio stations. Microsoft, which is promoting its Windows Media Audio format, is in a similar position. The big exception is AOL. With its massive user base and in-house music content from Time Warner and perhaps EMI, it will have a strategic advantage. It has already laid the groundwork for a comprehensive music service by buying Spinner, a streaming-audio provider, and Nullsoft, which makes another popular jukebox, Winamp. "They're scary," admits Mudd. In the end, the odds for MusicMatch's success will hinge on its ability to pay royalties for the music it distributes. "You're going to have to buy the record industry's content, and the key will be "how deep is your wallet," says Lee Black, an analyst at Webnoize Research, a music research and consulting firm in Cambridge, Mass. If only it were as easy as calling up Pink Floyd's Money on MusicMatch. Brull covers technology for Business Week from Los Angeles |
