QUIET REVOLUTIONARY:

Profile Music Mogul Marc Geiger

 

by Matt Welch

The Zone News

October 1999

 

 

 

When ARTISTdirect CEO Marc Geiger tries to convince the members of a rock band to let his company run their Internet operations, he often draws a monolithic solar system illustrating the way the music business works today. The sun, at the center of the universe, represents whichever of the five major global record labels the band inevitably works for (that is, if it wants to sell records and be played on the radio). Orbiting around, stuck in the gravitational pull, is the band itself, along with such earth-altering stars as the Beastie Boys, the Rolling Stones and Pink Floyd. The satellite goods generated by these bands (CDs, concert tickets, T-shirts, sheet music, news, etc.) are elsewhere, revolving around planets like Ticketmaster, Wal-Mart, and Rolling Stone. Scrambling around in the darkness, lunging after all these scattered bits of product, are the loyal fans.

That is, until the Internet changed everything, and Geiger & co. stepped into the void. With its one-stop "channels" for rock's more adventurous million-sellers, ARTISTdirect gives fans an easy-to-find location for most of the information they could ever want about their favorite recording artists, from touring schedules to downloadable songs to a complete set of fanzine links. And, at the same URL, they can click on buttons to buy CDs, T-shirts, limited-edition concert bootlegs, and anything else the band can shove through the Internet's "pipeline." The artists earn a commission on sales roughly five times larger than what their labels offer, plus they get an equity stake in an Internet company that is gearing up for a potentially lucrative public offering, for which the company filed an S-1 registration and prospectus with the Securities and Exchange Commission on Sept. 22nd.

"The spiel is to show that consumers think by brand, not by product type," said Geiger, a youthful 37-year-old who looks like a frat boy and talks like a human caffeine bomb. "I don't believe they know, or certainly don't care, what label their favorite bands are on."

This simple insight, combined with the utility and chaotic speed of the Internet, threatens to change the fundamentals of the record industry. ARTISTdirect and a mushrooming community of Southern California New Media companies have sprung, in the words of Blink Media chief Josh Warner, "into that breach, that underbelly where there's confusion, and where there's a disconnect between what the market is saying and what the record companies are providing."

"Now," explained ARTISTdirect's Jan Garber, "the artist is the center of the universe."

This potentially cosmic shift, not surprisingly, is not sitting well with the five immovable objects of the music biz -- Bertelsmann Music, EMI Music, Sony Music, Time Warner, and Seagram-owned Universal Music, which between them sell 80% of the world's $40 billion worth of records. The "Majors," as they are commonly known, have spent much of the last eighteen months thrashing around like cornered gorillas, swatting away at all the fancy new technologies and companies buzzing around their ears and pecking at their flesh.

The main target of their wrath is a San Diego company called MP3.com, which has created a vast music web collective of more than 28,000 bands who post their songs as downloadable files using the "MP3" technology of audio-file compression. With high-speed Internet access finally beginning to take off (especially among the music-gobbling young), MP3-file and other digital download sites have spread like cancer. Music is now "by far the most popular" Internet category among 12-18 year olds, according to the net marketing newsletter Iconocast, and an estimated 99% of all songs ever released on CD are available for free somewhere on the Web.

For the majors, MP3 is guilty of encouraging the spread of piracy (which hits labels especially hard, since selling CDs is their only basic source of income), for conditioning Internet users to believe that all music on the Web will be free - and for raising an eye-popping $344 million in an initial public offering this July. Perhaps, worst of all, MP3.com CEO Michael Robertson is a computer geek in his early 30s who likes Christian music, has vague ideas at best about how his company will ever make any money, and is worth a cool $1 billion, according to Forbes magazine.

"The [majors] are seeing a lot of companies go public on their content, and the ones that have been the most successful are the ones that said 'fuck you' to the record companies," Warner said.

But digital download companies like MP3.com and E-Music [June listing on NASDAQ; market capitalization of $535 million as of Oct. 12] still earn less money than a top McDonald's manager and are betting on unknown or obscure bands to make it big on their watch.

The bootlegging problem which makes them so threatening -- The Recording Industry Association of America (RIAA), representing the Majors, has spent countless energy over the past 18 months in the demonstrably futile attempt to create a "piracy-proof" technology called the Secure Digital Music Initiative (SDMI) -- may well turn out to be a useful loss-leader for the industry, if not a win-win promotional vehicle. Consider only that the most "pirated" band this year was Offspring, with reportedly more than 18 million illegal downloads ... and more than 8 million unit sales of their "Americana CD.

"The RIAA and all these people are just freaked," said Jeff Price, owner and general manager of the indie label SpinART Records, which has an exclusive digital download deal with emusic.com. "But to me, that's a smokescreen -- they just want to control the method of digital delivery. ... You can't eliminate piracy on the Internet, it doesn't decrease sales, and it doesn't destroy artist royalties."

Yet the industry continues to focus on meeting a self-imposed Christmas 1999 deadline to determine an SDMI standard that would thwart the digital pirates.

Meanwhile, ARTISTdirect has quietly signed long-term Internet contracts with 67 tangibly money-making acts, from Metallica to Tori Amos to the three artists mentioned above. There is nothing in these deals that directly menaces the Majors - the majority of goods sold on the artist-channels are in the "merchandise" category (caps, T-shirts, autographed memorabilia and so on), which are typically the responsibility of the bands anyway. And, Geiger's multi-pronged approach involves routine, friendly contact with the big record labels, who advertise on AD's popular five-year-old Ultimate Band List site (www.ubl.com), and work with ARTISTdirect's in-house booking agency to organize tours. And ARTISTdirect's other divisions work on a friendly basis with the Majors: The popular five-year-old Ultimate Band List (ubl.com), which contains exhaustive information and links on 75,000 bands and handles advertising and promotions with big labels; Kneeling Elephant Records, a record label with eight bands and a funding/distribution agreement with RCA records; and the ARTISTdirect booking agency, which organizes tours for major bands.

"I think we took a position that is not threatening to anybody," Geiger said. "I don't think we want to incur anybody's real wrath." But ARTISTdirect's dueling mantras -- "the artist is the brand," and "our mission is to bring the artists and fans closer together" -- infer that there is something colossal and unnatural preventing those two ideal states from being realized. The artists, fans and net/music companies who operate on the margins of the mainstream have no hesitation whatsoever about identifying the main obstacle as the record companies themselves. The Internet, many of these people hope, will deliver a swift and terrible punishment for the Majors' eternal sins of forcing crappy bands onto insultingly narrow radio formats in order to sell overpriced CDs in shopping malls ... and collect 85-90 cents on every dollar of every sale, after expenses.

"It's only a matter of time before a major artist breaks rank and says 'screw labels and radio'," said Jeff Cohen, lead singer of the country-flavored power pop band Philo, and an economic consultant on intellectual property issues. "FM is dead, and that is really the only leverage that a label has over an artist going it alone. ... All I think it's gonna take is a major artist to break with their label -- a Cheryl Crow or Jewel or Goo-Goo Dolls or something."

ARTISTdirect's prospectus, despite careful wording, shows how the Majors' fat will become AD's fire: "The high cost associated with development, promotion and distribution has led artists to rely on third parties such as record labels, merchandisers and tour promoters," the document reads. "Consequently, artists have had limited ability to control how they are marketed to consumers, to identify and communicate directly with their fans and to maximize their economic participation in all available revenue streams."

The experience of the typical music consumer has been fragmented and inefficient. Music consumers have had to search a variety of media to find music news and information, and have had to purchase compact discs, tickets and merchandise through different retail channels. Certain goods, such as apparel and other artist merchandise, have been difficult to find and frequently available only at concerts or selected retail outlets. For music fans, opportunities to interact with their favorite artists and fellow enthusiasts have also been limited.

Public Enemy, this June, became the first significant act to bypass the Majors in favor of the Internet, when it released its new record, "There's a Poison Going On," in a downloadable Liquid Audio format (in addition to a Zip disk format at bricks-and-mortar stores). The deal was handled by new media record company Atomic Pop. Bands who can afford the high cost of financing their own records can now sell them directly online and pocket 75-80 cents on every dollar that comes in. If their fan base is large enough -- the Beastie Boys, for example, are said to have 200,000 e-mail addresses of core fanatics -- bands can survive the corresponding lack of airplay to make the same profit on a fraction of the sales.

"Superstars will be handled differently in the future," said Dave Neupert, ex-new media guru for Maverick Records, and the founder of M80 Interactive Marketing, which runs the online stores of Tricky and Alanis Morissette. "These issues will start coming to the forefront as you see a lot of major stars and artists have their contracts come up."

Many of the artists most able and likely to defect -- Pearl Jam and Beck, for example -- have already signed exclusive Internet and booking contracts with ARTISTdirect. Though Geiger says he's "very bullish on the labels -- more bullish than the labels themselves," and encourages his artists to work with the Majors on promotion and distribution, he thinks somebody huge will "definitely" take the online-only plunge within the next year or two.

"It's part of our suite of options, that they can do anything they want through the pipe," he said.

When that day comes, there will be no one better positioned to handle the transaction than Marc Geiger and ARTISTdirect. Geiger has made his name over nearly two decades by betting correctly on which bands and concepts would strike gold - years before the Majors had a clue. No sane industry executive would have championed obscure bands like Depeche Mode in 1982, or organized a multi-band summer stadium tour around Jane's Addiction during the 1991 recession, or purchased a quirky music "web site" from two CalTech students in 1994. But these beyond-the-curve gambles, coupled with a relentless curiosity and work ethic, have brought Geiger to the verge of a massive Internet payday.

"Anybody in the music business will tell you that Marc was the first one to see it," said ARTISTdirect partner Steve Rennie, a longtime promoter who runs the Ultimate Band List. "Others will rewrite history, as they often do in the music biz, but I'm here to tell you that he was there on 'Day Dot'."

 

CAPTAIN ALTERNATIVE

To hear Geiger tell it, with a bit more talent he could have easily turned out to be a professional baseball player, or at least a physician.

"I was a nice Jewish boy, pre-med, going to be a doctor, [but] got my ass kicked there," said Geiger, who talks so quickly that verbs and prepositions seem like frilly accessories. "Wanted to play ball because I loved it ... until I got to really good pitching in college and realized I was going to be no better than a double-A player. I only played the first year, got scouted, got told 'you ain't going that far, son,' and I had concurrent things going on in music, so I chose that path."

College teammate and roommate, Keith Yokomoto, paints a slightly different picture, however.

"He's the only person who knew what he wanted to do since he was two years old," said Yokomoto, now the chief operating officer of ARTIST-direct. "If you look at his high school yearbook, his idol was Bill Graham."

Born in Englewood, New Jersey and raised in Stamford, Connecticut, Geiger moved out to California as a teenager when his engineer dad got a job at Stanford. At high school in Palo Alto, he showed the same kind of high-energy, multi-tasking personality that to this day leaves friends and competitors shaking their heads in wonder. He was a "jock-music guy," who played baseball, soccer and tennis, and who managed a couple of rock bands, in addition to earning grades good enough for Berkeley and Stanford.

"I just couldn't stomach paying the money for Stanford, and Berkeley had no housing," he recalled, "so I took a trip down to La Jolla, and said 'ya, I should probably go there.'"

This kind of linear, impatient pragmatism has served Geiger well; choosing UC San Diego in 1980, for instance, may have been the luckiest decision of his career. While struggling through pre-med and starting in the outfield of the varsity baseball team, Geiger and some friends noticed that the intense, conservative school lacked a proper record store anywhere near campus, and that many students didn't have a car. So, naturally enough, they started a co-operative record store called Assorted Vinyl, selling Geiger's favorite import 12-inch dance remixes from bands like Echo & the Bunnymen and Japan.

"It was easy," he said. "The school funded it. It was five of us, managing a small retail operation at the student center. Buying records, buying imports that you love and you know is really not that hard. It really wasn't."

On Saturdays when there were no ballgames, Geiger would gather his friends at the apartment for long, free-ranging sessions of listening to, and arguing about, his massive record collection.

"He really loved music," Yokomoto recalled. "I'd never seen that many albums in one place before."

"He's a voracious listener of music," said Rennie, who was working as an alternative concerts promoter for Avalon Attractions at the time. "I would go to Mark's house and he'd have a hundred CDs stacked on his table. ... I'd just come over and say 'OK, tell me the best three out of that stack, I don't want to listen to the other ones.'"

Not satisfied with merely running a record store, playing ball and attending class, Geiger also joined the student events committee his freshman year, and immediately began booking concerts by the likes of Ian Hunter and King Crimson -- four shows in four months, altogether. "One was a loser, the other three were successful," he said.

When the scouting report about him didn't include the words "major league," Geiger suddenly dropped his dream of becoming a pro ball player, switched majors to management science (with a computer science minor), and threw himself into the music biz by starting a concert promotions company called That Kid Presents (as in, "who's that kid in centerfield?").

"Then it started to really go crazy," he said. "I mean really going crazy."

The local rock station, 91X, soon put Geiger in touch with the town's biggest promoter, Avalon Attractions, which gave him his first industry job. "The guy at the time who was running the San Diego office was a total coke addict. It was this full-on made-for-TV movie story - lots of cars, cat's girlfriend left him, pathological lying - you know, the whole bit." As a result, Geiger "ran the place, built the business." He also helped launch a popular concert venue, Humphrey's Concerts by the Bay. When 91X announced that they were changing their format to become the country's third "rock of the '80s" station (L.A.'s KROQ was the first), Geiger was brought in to play his weird British records on the night shift.

"It all got crazy, and I got really shitty at school," he said. "I was making probably close to eighty or a hundred grand a year as a 20-year-old. ... I'm living in Del Mar overlooking the ocean in a really nice condo, and all my friends are asking me for tickets. I'm hanging with talent, I'm doing six nights with Jimmy Buffett at Humphrey's, and then I'm going to Peter Gabriel at the amphiteatre, the Clash or the English Beat at whatever. ... It was a dream life."

Most college students in that situation would have dropped out, or at least developed a serious drug habit. Geiger ran for class president, and won. Not only did he win, but so did his political party -- which he also founded and organized around a platform of providing more entertainment and good times for the wound-up students. "It was just fun, because when you're in college you just do things like that," he explained, somewhat inadequately.

Despite failing "a bunch of classes," Geiger staggered toward the finish line, finishing just 12 units short of graduation, close enough to go through ceremonies. His heart and talent, obviously, lay elsewhere.

The concert business "just came naturally to me," he said. "I'm a fairly aggressive person, I just took over and did it. ... There are certain things you have to do to do any job well, and, it was so interesting to me, that I took it on (the concert business) with a certain amount of zeal, and just went for it. Part of that is confidence, and I haven't really ever had a problem with that, really. Confidence of being able to call up a big agent that other people might have been intimidated by, and just talking to him and telling him 'no' if something's not right and they're trying to beat you up. ... A lot of people think it's arrogance, but it has served me well, and I just went forward."

Having the competitive fire of a three-letter athlete probably helped, (as did his son-of-an-engineer's proficiency in math) but taste and timing proved crucial in Geiger's ascent.

There were probably less than 10 record industry people in 1982 who thought that the Cure, Depeche Mode, New Order and R.E.M. could ever sell millions of records in the United States. Geiger was a huge fan of these bands as a teenager. Then he saw his friends and fellow college students react positively when they heard the music, and had the singular experience of watching first-hand as a radio station playing what would later be known as "alternative music," shot to number one in a market not known for its hipness.

"We picked the right moment, the right timing in history, the right genre," he said. "Other people were busy doing other things. ... After that it was very clear to me that there was a window of opportunity to be successful by really pushing the envelope."

The day after graduation, Geiger moved to Los Angeles and started working as a booking agent for Regency Artists, where he developed their "alternative" division. Over the next seven years (during which Regency was bought by Triad Artists Agency, and eventually folded into the William Morris Agency), he represented bands such as the Pixies, the Smiths, New Order, Jane's Addiction, and Nirvana, as their fan bases spread from the college radio underground to a burgeoning new category of "alternative" stations.

"One year I went to the Reading Festival [in the UK], and of the 21 bands on the main stage, I had worked with 15," he said. Seeing 50,000 fanatics watch an all-star cast of left-field acts like Nick Cave and the Bad Seeds led to his next great insight -- why wouldn't this work in America?

So, with Jane's Addiction front man Perry Farrell, Jane's manager Ted Gardner, and fellow Triad agent Don Muller, Geiger introduced a curious traveling freakshow of cutting edge rock bands in 1991 -- a time when the industry trades were asking whether even Bruce Springsteen could ever again sell out a stadium tour of the United States.

Lollapalooza turned out to be one of those watershed events, when a generation (in this case, the long-brooding Generation X) suddenly looked up and noticed that their ideas and tastes were taking over popular culture. R.E.M., all of a sudden, had the number one song in the land, Huey Lewis and Starship were as far away as Ronald Reagan, and the hottest album/CD in the country belonged to a screeching, pap-hating punk rock band called Nirvana. After 10 years of exile in the cultural wilderness, an entire subculture emerged with their passions validated, and their opinions actually courted by the record companies they had learned to despise.

"From a biased, arrogant viewpoint, I think one of the things I've always been good at, is that I have a good instinct for what's next in the areas I know and like," Geiger said. "You always have to listen to people who are 'dialed in' to the scene very actively."

You also have to be one "king-hell" of an organizer to arrange for the contracts, transport and amenities for two dozen bands. "Marc," said Rennie, "has an infinite capacity to deal with hundreds of things at one time."

After the success of the first Lollapalooza, Geiger left William Morris for rap/rock impresario Rick Rubin's small American Recordings record label, where his multi-tasking abilities were put to the test.

"He was the computer guru," recalled Garber, who worked at American Recordings with Geiger before following him to ARTIST-direct. "In addition to being the head of A&R, and the emerging technologies senior vice president, he was also the guy you went to if you couldn't print, or your computer froze, or if you needed to export your contacts. He was the guy that would do that for you, right in the middle of booking the main stage for Lollapalooza."

His time at American Recordings marked the first time Geiger worked at an actual record label, signing bands like the Jesus & Mary Chain and Julian Cope. It was also the first time in his career that success proved elusive. "I was a complete failure," he said cheerfully. "I was just another guy who signed bands that I loved, and none of them were hit artists."

He continued with Lollapalooza, however, and spent much of his spare time working as an amateur computer programmer, tooling around with the various precursors to the World Wide Web and spearheading the nascent new media strategies for American's parent company, Warner Bros. Records.

In 1994 he discovered a web site called the Web Wide World of Music. Started by CalTech graduate students Joe Cates and Aure Prochazka, the WWWoM included their "Ultimate Band List" (UBL), featuring links to hundreds of bands, and updated by the fans themselves. "If there was ever a breakthrough moment of vision, it was there," Geiger said.

American Recordings bought the site outright in January 1995 for an undisclosed sum. Geiger took over the management of UBL, and through a complicated series of transactions (which has left Rick Rubin the single largest shareholder in ARTISTdirect), folded the entire company under ARTISTdirect.

"We didn't keep any interest in it," Prochazka said. "That's how stupid we were."

Soon, Geiger began plotting the coming revolution.

 

BUILDING DA BOMB

"Once he took on the UBL project, he came back a couple weeks later with twelve pages of typed, single-spaced ideas of where he wanted to take it," Prochazka said. "Eighty percent of them were just great ideas. ... I think he works pretty much 24 hours a day; he always seems to be excited."

Geiger enlisted the aid of his old friend Yokomoto, who by then was busy helping Southern California defense industries restructure for the post-Cold War climate.

"We really started looking at this business around '94, talking about how the Internet would empower artists to do something different," Yokomoto said.

The two kept their full-time jobs, however, and mostly left the UBL alone to grow organically while they banged out drafts of business plans. And grow it did: through a GeoCities-like system of letting the users maintain the databases themselves, the site became a massive "A-Z" maze of links to band homepages, Internet radio stations, online record stores, and ticketing outlets. Without ever having more than three full-time employees, the Ultimate Band List became the largest and most popular music site on the Web.

Geiger analyzed how visitors to the site behaved, and discovered something shocking: 88% of the users immediately typed in the name of a band. "That," he said, "struck a revelatory note." If fans wanted to go straight to their favorite bands, Geiger also knew, from his years of booking and A&R, that the bands were having difficulty getting their products into the hands of their hard-core faithful. "Other than records, the rest of the food chain was not well-distributed at all," he said.

A bridge was needed between artist and fan, and the Internet provided the most efficient medium yet invented. In 1996, Geiger registered the artistdirect.com domain name, and decided on a three-pronged approach: in addition to building on the UBL base to create artist channels, he would also start a net-savvy booking agency, and launch a boutique record label to break new acts. When RCA agreed to fund ARTISTdirect's Kneeling Elephant Records, Geiger and Yokomoto brought in Don Muller and an industry veteran named Bill Elson. The group pooled their money, and the company was launched on paper in August, 1996. In January of 1997, the first workers for ARTISTdirect showed up at a nondescript, Ventura Blvd. office building, wondering what would happen next.

"We didn't take financing to start the company," Yokomoto said. "The agency was funding the Internet operations. So, for the first 18 months of the business we had to run the business on cashflow."

The challenge of building a complicated company from scratch, if anything, heightened Geiger's knack for multi-tasking.

"He can be on two different phone calls, talking to someone across the room, typing something or reading something, and if you're whispering about him while sitting on the other side of his office, he'll hear you. You're thinking there's no way, with everything else his brain is doing, that he's gonna know that you're sitting there talking about him, and he'll hear you and he'll respond to what you're saying - when he has all this other stuff going on," said Garber. "His brain has this knack for doing 10 things at once that I've never seen in anyone before, ever."

One of the company's first tasks was to begin making sense of UBL. "There literally wasn't one music graphic on the whole thing," Yokomoto said. "There was no content other than the links."

While Yokomoto wanted to immediately ramp up to a sexy multimedia presentation, Geiger convinced the partners to go slow on the fancy stuff. "That was where Marc was just phenomenal. His intuition was amazing. ... As much as you would love to have video and audio, it just wasn't there at the time."

From the beginning, the booking agency had already signed deals with Alice in Chains, Beastie Boys, Beck, Foo Fighters, Pearl Jam, Primus, Rage Against the Machine, and the Red Hot Chili Peppers. The next step was to start a band store, and what better guinea pig than the Rolling Stones?

Stonesbazaar.com came out in September 1997 with about 80 different "tongue-logoed" goodies to buy. Mick Jagger made a joke in Chicago about "Da Bulls," "Da Bears" and "Da Stones," and within a week, 500 "Da Stones" were ordered, printed, sold and shipped. A signed poster went for $3,200 at auction. Company officials refuse to discuss numbers now -- due to a pre-IPO quiet period -- but AD's Steve Rogers told Internet World in May 1998 that the store was doing $5,000 in sales per day, and that it had generated $1 million since launching.

The company then went about signing exclusive Internet contracts with top-selling artists, starting with the alternative-flavored acts represented by its booking agency. The terms were seductive -- without having to lift more than a finger, a band would get a well-designed web site and store, earn three-quarters of any profits earned from it, have a thorough database of its core fans, and receive equity in an Internet company that was looking down the road at an IPO. (To sweeten the deal, the band's agents, business managers, attorneys and other advisers are also frequently offered stock.) And if the artist wanted to get really involved with the site (as the Beastie Boys have), well, that was even better for everyone.

From the beginning, Geiger predicted that there would be a battle over the exclusive rights to develop and maintain bands' Internet databases. But fortunately for him the Majors didn't catch on until Sony started demanding the rights of their new signees and ownership of their URLs earlier this year. "It very well illustrates the danger to the artist imposed by the labels," Geiger said.

ARTISTdirect began snapping up artists -- Ozzy Osbourne, Slayer, Tom Petty, Pink Floyd, the Beasties and more. The UBL, under the direction of promotions veteran Rennie, reached out to record labels for special events, additional information, and increased advertising.

The site was redesigned in April 1998 to fold in its commerce component, to add streaming-audio listening rooms, and to include the data from the comprehensive All-Music Guide. In June 1998, the company took more control over its e-commerce by elminating its "buy-button" link to online retailer CDNOW and replacing that link with its own online stores, administered by Alliance Entertainment of Florida.

Two months later the company closed its first round of equity financing, $4.9 million from Bear Stearns Castellation Ventures, the Psilas Group, and Dream Media Ventures, according to Yokomoto.

"Having developed the business with very little money but with incredible talent, they were running up against the challenge of the success of the company," said Pascal Desmarets, who was brought on as Vice President of Information Technology and Operations late last year. "We were going to choke on the old technology."

At about 100 orders a day, the stores showed clear signs of strain, Desmarets said, and the fulfillment functions were in disarray. "They had no idea how much inventory they had in the warehouse, and they had no control over back orders," he said.

ARTISTdirect was able to clean up the process by negotiating a deal with software provider Pandesic to rent out the multi-million dollar SAP enterprise management program, in exchange for a small percentage of sales revenue. "It allowed us affordable entry into this incredibly, advanced technology," he said.

The system went live this September, at a time when the company was operating 28 stores. Now, orders are processed instantaneously, merchandise is stored in the same Florida warehouse as Alliance Entertainment's 250,000 CD titles, and the new system is able to handle a minimum of "hundreds of thousands of orders." All of this was possible without adding a single employee on the processing end.

By the end of 1998, ARTISTdirect was an Internet company with $4.6 million in revenue (and a $6.3 million loss), with an exploding e-commerce quotient that grew from $134,000 in the first quarter to $744,000 in the fourth quarter.

On the content end, the company acquired Seattle-based iMusic.com for $2.5 million (mostly) in stock, and also bought an R&B and hip-hop online community. It then began its response to the MP3 revolution by expanding its MP3 offerings and letting unknown bands post their own files and information.

"Broadband entertainment is happening in 2000, so that's kind of our emphasis as we look forward," Yokomoto said. "The one thing we didn't know, and the market didn't know, was how fast this whole digital downloading phenomena came on the scene."

In late May, the company received a second (and probably last) round of pre-IPO equity financing - $15 million, from Chase Capital Ventures, Bowman Capital, Flatiron Partners, Cassandra Capital, Psilos Group Ventures and Constellation Ventures. The money will be used to finish off technological upgrades, and to help pay for a "ten-to-fifteen million dollar advertising campaign, featuring the artists, to re-brand the company," said Vice President Nick Turner.

The company's low-profile era, basking in the shadow of MP3.com and the digital downloaders, is about to come to an end.

A high-profile, $10 million advertising campaign is set to hit the airwaves before the end of this year; e-commerce and advertising revenues hit nearly $1.7 million for the quarter ending June 30 (up from $300,000 the previous year); Morgan Stanely Dean Witter is busy working on the company's IPO; and the viewership for UBL and iMusic combined was up to 180,000 visits a day as of this July.

 

'DAY OF RECKONING'

The Encino offices of ARTIST Direct are spreading like mange over five suites and three floors of a bland office structure. Bright, gothic rock posters spice the walls, people sit and whisper around the clutter of each other's desks, and even the outdoor smoking areas are crowded with mostly optimistic-looking Hollywood and Silverlake types. The artistdirect.com network, as a whole, has just pushed ahead of MTV online in the latest Media Metrix ratings (3.1 share to 3.0)…and the advertising campaign hasn't even begun yet.

"The more people that come in, the crazier the temp agency and dentist office people (in the building) go, because we are invading here," said Garber, huddled in a smoking alley near the trash bins. "We have probably 137 people in an office space that's meant for 50, we are all tripled or quadrupled up in our offices. Our CFO is huddled in the corner of Don Muller's office, our VP of New Media is huddled in the corner of our CEO's office, using his wastebasket as a desk for his briefcase, and there aren't enough phone lines, aren't enough parking spaces…and hopefully we'll move soon."

None of these comments sound remotely like complaints; there is an IPO in the air, a smell of impending success. The grunts checking links in the UBL suite may be bored out of their skulls, but at least they aren't drowning in the over-funded, over-powering cynicism that pervades so many of the Internet/Hollywood companies found in Santa Monica's "multimedia corridor."

"Most Internet companies have all of the resources and none of the talent, and they're all vying for the talent," Garber said. "We have hardly any resources, and all the talent.

The mood is also younger and more enthusiastic than that of the modern major label. Steve Rennie says his old buddies from Epic Records come by and say "goddamn, this is like Epic was 20 years ago!"

Despite the usual chaos of a startup, and the cramped proximity of young attractive people, there is a muted feeling of low-nonsense work, and a small, but noticeable, amount of clenched-teeth dread. Several people who work far under Geiger ask, witheringly, "how'd he treat you?" in much the same way that record industry people who have worked with him ask, sarcastically, "what's he like?" When he walks through the office, rattling off suggestions and salutations, even company managers lower their voices.

For the worker bees, there is no telling when he might, in Garber's words, "swoop down into the minutiae into, 'why is that button there,' and 'shouldn't it be over there,' and 'why did you write this that way,' things that make you wonder how he even saw it, let alone had a chance to comment on it."

But even Geiger's competitors admire the man for his accomplishments - not least of which is his huge lead in developing the stores for musicians.

"They're a great company; I think Marc's a leader in this whole field," said Neupert of M80. "ARTIST Direct is by the far the farthest ahead."

"They've been really good," said Warner, who is also in the business of doing online promotions for bands and compiling fan databases. "They're a classic example of putting a pole in the ground and saying 'we're going to build up on this space.' … They've been really good at layering new functionalities and utilities into their business."

There are many potential bumps in the road before the IPO money is safely in pocket. As always, the market may contract or collapse, postponing all tech and tech-music offerings. Many investors feel burned by the post-IPO free-fall of both MP3.com and Emusic.com. The importance of digital downloading may also outstrip ARTIST Direct's reaction to it, making it seem like an old-fashioned company. Conversely, a heavy bet on broadband access (and expensive, slow-loading images) could backfire if high-speed modems remain elusive. And any number of international taxation and intellectual property issues could have a profound impact.

But most of all, the slumbering record companies might ruin Geiger's picnic by accelerating their own Internet activities and identifying ARTIST Direct as a threat, rather than a friend who helps them to promote their bands and to understand the Web.

"I've heard some negative things from the record labels, that they're not thrilled with ARTIST Direct," said Neupert. "Because they're leveraging brands that they paid to develop…and they're gonna be competing directly."

"I think one of the things that keeps investors a little bit wary of net music stocks is that no one knows yet what the Majors are going to do," said Sara Zielstra of Warburg Dillon Read, a consumer e-commerce analyst who covers Emusic. "If they wake up and smell the coffee, if they embrace an open standard, an open technology, then that…could potentially make a lot of these companies, and what they're doing, completely moot."

The Majors still have war-chests filled with cash, and decades of history working as venture capitalists, investing in pieces of music and then successfully promoting them enough to get a healthy return on investment. All but the most radicalized of Web upstarts believe that the Majors will still exist as banks, talent managers and promotional agencies in the coming Internet era. Even the smart young things, stuck in long-term label contracts and suffering from IPO envy, are starting to find their ways on friends-and-family lists of new music-related offerings; some are even given leeway to identify interesting companies to buy or poach.

Geiger says he just wants to help to make the pie bigger for both his company and the record industry, like the VCR did for the film entertainment industry.

"I believe the Majors will thrive and grow in this time. They aren't going away," he said. "I think they're scared of facing the day of reckoning."

He believes labels will become a hybrid of their current selves, deals will start favoring artists more, and fans will get several different pricing and packaging options for a CD. In the meantime, Geiger will cheerfully march along towards his goals: exclusive Internet rights to the top 500 artists in the world; a record label that breaks new artists; and a company that's worth a billion dollars.

"I'm not scared of anything," he said. "I think we've got a really solid business….The only fear I have is not executing." z

 

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