Is Anyone Listening?


The Industry Standard.

Listen.com set out to become the Web’s most comprehensive directory for digital downloads. Then Napster came along. By Hane C. Lee

As recently as this spring, Listen.com seemed ideally positioned to lead the digital music revolution.

The company had secured the backing of the Big Five music labels – the only digital music service that can make this claim. If anyone could coax the labels online, it was Listen, and in doing so it stood to dominate online music. But along came Napster, the neat little software application that lets users copy MP3s from each other’s hard drives, and it shoved Listen aside. Now as Napster sits squarely at the center of the digital music universe, Listen.com is scrambling to keep itself from falling off the map.

Listen’s reversal was swift. The site launched in mid-1999 as a tool for finding legal music online, a service eagerly embraced by digital-music enthusiasts who helped make MP3 one of the most searched-for terms on the Web. The site took off on college campuses, helped along by a marketing campaign this spring featuring posters of wrestler obey giant by ultracool guerrilla artist Shepard Fairey. That campaign cemented Listen’s popularity with the coveted 18- to 24-year-old male demographic and helped the site gain the magic known as street cred.

Listen wasn’t just a hit with college kids. In March the company scored a huge win when it secured cash investments from BMG, EMI, Universal and Warner, joining Sony Music, which had previously invested in the site. Though totaling no more than a couple million dollars, the deals were monumental. Listen.com became the sole online music company with a financial stamp of approval from all five major record labels.

Listen isn’t suffering the same financial troubles as other online music startups amid the current capital drought. In fact, the private company still has around $60 million in cash from its last round of VC financing raised in March, just two weeks before the market took its dive. But with all the attention given to distribution platforms, compensation mechanisms and delivery methods – not to mention the future of free access to virtually any song – many in the digital music business feel that Listen.com’s directory and content offerings have simply become irrelevant.

Listen “went from being ‘the bomb’ to being a bomb,” says one online music executive who requested anonymity.

Listen.com officials dismiss that contention as wrong-headed. “Listen.com as a destination site vs. Napster – that’s one thing. But that’s not what we do,” says Listen.com spokesman Sean Garrett. Indeed, Listen.com has built an impressive distribution network, syndicating its digital download directory to sites such as Excite, Lycos and NBCi, and offering its Web partners customizable radio and other content.

But despite Garrett’s claim, Listen.com started out as a destination. And the shift from being a destination site that happened to syndicate to being a syndicator that happened to have a Web site didn’t occur until Napster started to catch on. Traffic figures from Media Metrix show that unique visitors to Listen.com peaked at around 894,000 in March, and that number has declined ever since. Listen.com execs counter that the numbers don’t accurately reflect reach, since they don’t include exposure from syndication partners. Listen estimates that around 5 million unique visitors across the syndication network see its content each month. Compare that to Napster’s user base, which was estimated at nearly 2 million in March and has since ballooned to more than 40 million, according to the company.

With Napster threatening, it was time to come up with a plan. At a two-day offsite meeting at the end of May, Listen.com’s board hashed out the company’s future in a Napsterized world.

“We knew it would be very hard for us to build a destination site business in a way that was expecting to keep people on the [Listen.com] site because people would discover downloads, then make their way to Napster,” recalls Listen.com CEO Rob Reid, a former venture capitalist. Napster knocked Listen.com off balance in more ways than one; the two companies were rumored to be in merger talks as recently as August. Though Reid won’t comment on the rumors, he isn’t bashful about extolling Napster’s virtues and the potential for synergy. “Probably along with the original Macintosh interface and the original Mosaic interface, the original Napster interface – which is largely what we still have – is one of the three most incredibly elegant and intuitive interfaces ever designed,” Reid says. He envisions Listen as a next-generation user interface that could sit on top of a peer-to-peer system (like Napster), a celestial jukebox system (in which a central server delivers any song on demand) or a device-based system (such as a service that streams music to your cell phone). “Strictly doing search for legal music is not what we’re about anymore,” Reid says. “It can’t be what we’re about in the Napster environment.” That realization is what motivated Listen to make a play for Scour, maker of what was once the second most-popular file-sharing application; Scour’s legal battle with the entertainment industry forced it into bankruptcy in October. Though Listen didn’t win last month’s auction for Scour’s assets, Reid doesn’t rule out the possibility of acquiring another peer-to-peer software company – which observers say would be a good strategic move.

“They need to do something interesting,” says Adam Powell, CEO of Angry Coffee, which offered a Web interface to Napster’s network until legal concerns forced it to shut down the service. “Not necessarily in peer to peer, but they have to win back their audience. There’s something really horrible about being uncool, especially in [the digital music] space because it’s driven by kids.”

Even with something as controversial as file-sharing, though, Listen still wants to be the nice guy. “If peer to peer prevails, there will be many players providing it,” says Reid. “And I’d rather be working with all of them.”

But even if Listen.com were to integrate file-sharing technology, its success is limited by the actions of the very industry it’s trying to cooperate with, says David Touve of MP3 news site MP3.tv. “Without having complete catalogs online, Listen cannot offer the most compelling solution,” he says.

By contrast MP3.com , which tested the limits of copyright law and was subsequently sued by the record industry in January, has managed to reach settlements with and secure licenses – though at a steep price – from all five major labels for its streaming-music locker service. “It would have been better for MP3.com to wait a year to launch [My.MP3.com] and save themselves $180 million,” says Dave Goldberg, CEO of Launch Media, another online music company. But when you weigh the speed-to-market against the damages, it may seem in Internet time that it’s not worth being overly cautious, he adds.

Don’t expect Listen to go down in flames. It still has plenty of money and, as a private company, the luxury of not being accountable for its lack of profits. Perhaps the company’s best strategy would be to lay low until the whole digital-music sector sorts itself out. The danger is that Listen could become a cuckold. Rather than exploiting its existing relationship with Listen, at least one of the major labels – BMG – appears ready to get into bed with the bane of the music industry, Napster. (In a deal cut in October, the label’s parent company, Bertelsmann ,lent Napster an estimated $50 million to come up with a secure subscription service.) And as the others sniff around for their own mates, it isn’t likely they’ll gravitate toward one that makes so little noise. Well, you know what they say about nice guys.


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