Digital Flashback: Stocks And Bands

Investors were high on online music a year ago, when Liquid Audio prepared for an initial public offering.

What a difference a year makes.

When secure digital-music distributor Liquid Audio Inc. filed a registration statement with the Securities and Exchange Commission, a preliminary step to an initial public offering of stock, Internet stocks were red hot. And Liquid Audio did not disappoint.

The company had just announced a deal with Amazon.com to distribute two tracks from Sarah McLachlan's live album, Mirrorball — "Building a Mystery" (RealAudio excerpt) and "I Will Remember You" (RealAudio excerpt) — and an agreement with America Online to post three new tracks by singer/songwriter Beth Orton.

In July, Liquid Audio sold 4.5 million shares at $15 each. The price soared as high as $48 in a first-day feeding frenzy before closing the day at $36.56 per share. In early November, shares traded as high as $49.25 before beginning a six-month plunge in which Liquid Audio stock dipped below $10 a share as the dot-com stock market swooned. In the current harsh climate for online music stocks, they're struggling to remain above $12 per share; the stock closed Wednesday at $12.13.

Wall Street, which welcomed digital music distributors with open arms only a year ago, has now slammed the door in their faces as financial losses mount and uncertainty surrounds their revenue models.

MP3.com, whose My.MP3.com service was ruled by a federal judge last week to be in violation of copyright laws, saw its stock price boil over and evaporate in last summer's heat. MP3.com declared its intent to go public May 14, 1999, and two months later the company sold 12.3 million shares at an initial price of $28 each. The shares soared to $105 on their first day of trading, making paper millionaires out of some early investors. Rocker Alanis Morissette, who accepted stock instead of cash when MP3.com sponsored her 1999 summer tour, was one of the beneficiaries of investors' generosity. But in November, MP3.com, too, began a six-month slide, slipping to $7 in late April as its legal woes mounted. MP3.com's closing price Wednesday was $10.75.

EMusic.com has fared worse. The MP3 music distributor, which counts Elvis Costello, Bush, They Might Be Giants and Phish among its best-selling artists, made its first public sale of stock on May 12, 1998, under its old name, GoodNoise. In the past year, the stock has traded as high as $35, but its current price range of $2–$3 per share is its lowest. It closed Wednesday at $2.66.