SAN FRANCISCO (07/21/2000) - Mark Cuban, the billionaire founder of Broadcast.com and owner of the Dallas Mavericks NBA franchise, is planning to launch an offline and online music label in partnership with a major radio group, possibly industry giant Clear Channel Communications Inc.
While the online music space is pretty much a land-grab, with literally hundreds of upstarts competing with the major labels, nobody is yet making money, and lawsuits are flying against music-swapping services like Napster Inc. and Scour. But Cuban says his label will have the edge by attracting big-name stars as their label contracts expire, and having a strong tie-in to a radio group. "Radio generates more than 80 percent of demand for music in the U.S.," Cuban told Inside via e-mail. ''We think by including the major radio groups, we can tilt demand generation towards our artists and put a hurt on traditional label economics."
Cuban did not delve into all the specifics of his venture but suggested that his Web model would be based on offering "unlimited access to an artist's library and other content" in return for a modest subscription fee. Cuban's label would rely on partners to produce and distribute CDs for his label. This approach, he said, works better for both artists and fans than the usual label distribution and marketing deal.
"The key to the model is that it is multi-medium," he said. "I think with one or two successes, we can attract lots of artists as their contracts with the majors expire."
Cuban, 41, started Broadcast.com five years ago to stream radio stations over the Web, and sold it to Yahoo Inc. a year ago for US$4.9 billion. He is clearly not averse to taking risks: Shortly after buying the Mavericks for an estimated $280 million last year, he signed tattooed roundball controversialist Dennis Rodman and even let him live in the guest house at Cuban's Dallas mansion before the relationship soured and Rodman left the team.
Cuban said he is committing up to $50 million to the as-yet-unnamed label and is in discussion with several radio groups and top music industry executives, whom he would not name. A music industry veteran familiar with the situation identified one of the potential partners as SFX Entertainment, the concert-venue giant that is being acquired by radio powerhouse Clear Channel.
Cuban also said he is already in serious discussions with one major artist with a recent platinum album; he declined to identify the artist. Calls to SFX and Clear Channel were not returned.
Media analyst Pascal Volle of consultancy Informed Sources endorsed Cuban's logic. "If you make a deal with Clear Channel, you actually are in a much better promotional position than the major record companies," he says.
On the other hand, a pairing with a group of Clear Channel's scope could raise antitrust questions, given the preference such a company could extend to its own artists in concert promotion and on the airwaves.
The notion of Cuban allying with the radio industry is somewhat ironic - radio executives have been slapping their heads in disbelief at the billions in market cap Broadcast.com generated by sending its signals out on the Web, even as radio groups resisted serious investments in streaming audio.
Clear Channel, which stands to have some 800 AM and FM stations after its acquisition of AMFM Inc. is complete, has made several modest digital bets.
These include a stake in Tunes.com, now part of EMusic.com; XM Satellite Radio, a nascent satellite-based subscription music service for cars; and USA Digital, a digital-radio venture. It also has a music label through its British station Jazz FM. Clear Channel's planned $4.4 billion acquisition of SFX was announced in late February. SFX, the industry leader, owns or operates 120 venues in 31 of the country's top 50 markets and last year promoted some 7,800 musical events.
Following are excerpts of Inside's e-mail correspondence with Cuban:
Inside: What can you tell me about the business model for what you're planning?
Cuban: Of the $17 CD price, only about $1.50 goes to the artist and about the same goes to the label. If we assume, and I think we can, that most people only buy one copy of a CD, and most artists release no more than one CD per year, then you could define revenue per customer, per month for the artist and label as about 12.5 cents. So if we charge more than 25 cents per month for a fan to download all the music of an artist they like, both the label and artist are making more money than they would from the sale of a CD, without the inventory and retail risks. Plus I think we can offer a more satisfying experience to the fan. ...Our guess is that far more than half of fans who buy the subscription service will also buy the CDs for the convenience. So the profit for artist and label should increase significantly.
Inside: Is this your primary business focus now, in addition to the Dallas Mavericks?
Cuban: No, the Mavs will be No. 1. We will bring in industry people to run [the label] once it settles down. The hard part is the relationships, not running the company.
Inside: Is it possible that Yahoo will be involved?
Cuban: It's always possible. They have the right to invest in any new deals I do.
Inside: What's the timetable?
Cuban: As soon as we can determine if the radio groups are in or out.
Inside: How is this going to be different from some of the other Web/label plans that have been talked about? Is the point that no one has stepped up with big scale and big artists?
Cuban: You are right. The point is to use radio to generate demand and use name artists. I wouldn't try this with no-name artists.