Sour Notes for 40 Workers

SAN FRANCISCO (06/15/2000) - Inc., the largest company devoted to selling music in the MP3 format, announced Thursday that it has laid off 40 of its 220 employees, about 20 percent of its total workforce.

The layoffs were distributed across three of EMusic's offices: its headquarters in Redwood City, California, as well as its regional offices in Los Angeles and New York. EMusic's other offices in Chicago and Nashville, Tennessee, were spared.

EMusic President and Chief Executive Officer Gene Hoffman Jr. said most of the layoffs were "label-relations staff," employees engaged in recruiting small, independent labels to sell downloads through EMusic.

"We felt we didn't need to do more of that in the future," Hoffman says, adding that EMusic would instead refocus on signing deals with "large indies and the major labels."

Hoffman said the layoffs would save the company US$15 million over the next 12 months, allowing it to stay afloat until mid-2001, when he expects the company to become profitable.

EMusic had been burning about $20 million a quarter. As of March 31, 2000, it had $46.9 million in cash.

The cuts also reflect some doubt that EMusic would be able to raise more money beyond the $100 million it has raised since its inception in 1998.

"In the past, the markets were asking for expansion at all costs," Hoffman says. "Now they're looking for profitability."

EMusic is perceived as a bellwether in the digital-music industry. It is the largest business built on the sale of downloadable music, mostly in the form of singles for 99 cents.

Even though each quarter brought a new sales record for EMusic, consumers never really bought into the idea of paying for MP3s. Last quarter, EMusic earned $3.2 million, up 20 percent from the previous quarter. In April, EMusic announced that it had sold its millionth download. But to reach that mark, the company offered expensive incentives like free stereo headphones with a 99-cent download, free PC speakers with $25 in downloads and even an MP3 player with $50 in downloads.

The release of Napster last fall further complicated matters. Why buy an MP3 file when you can download it for free? Not surprisingly, EMusic has been a vocal opponent of Napster. EMusic Chairman Bob Kohn, a noted copyright attorney, publicly supported an injunction against Napster filed by the Recording Industry Association of America (RIAA) on Monday.

"The entire purpose of the Napster service is clearly the copying and mass distribution of MP3 music files without any regard for those who hold the copyrights to the recordings," Kohn said at the time. He claims that Napster is illegally linking to 100,000 recordings that EMusic has the exclusive right to distribute on the Internet.

The layoffs will not effect any of the media properties that EMusic purchased last year, including, and pioneering music-download site

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