Wall Street Review interview with Jim Seymour. Wall Street Review can be heard Monday though Friday on KSDO.com and on KSDO AM 1130 in San Diego from 6:00 to 7:00 P.M EST. Jim Seymour, who writes TSC's "Tech Savvy" column, spoke with Wall Street Review on Aug. 3.
Jim, how are you doing today?
Hello guys. I'm doing fine. What a strange day in the markets. We had all the "Greenspawn" out there front-running on this talking about it. And we've had it for weeks and of course they did what most of us thought they would do. And yet we had a fair number of those people running around yelling, "the sky is falling, the sky is falling."
Those people are on CNBC everyday all day long. It doesn't matter what the market's doing.
I think you're right.
When it comes to high technology you cover it all for the TheStreet.com. You've written extensively about the digital music revolution. In our own backyard we have MP3.com Web site but give us the pros and cons here. What's behind this company?
Well, I think by being early and out front and supporting the idea of MP3 as a format for digital music that can be downloaded ... they have an enormous first-mover advantage. I think that their business model offers some hope, but it is sometimes hard to say that about business models in the Internet business where pretty much every business model is betting on the come. But it looks to me as if MP3.com has a fairly secure position and at least a nice position to build on here.
They have multiple revenue streams, which is not usually appreciated. People look at MP3.com and they see those custom CDs that MP3.com will burn for you, but I don't think there is a lot of revenue there. They see a lot of free music put up. MP3.com is a big friend of the undiscovered musician and if you listen to some of this music on MP3.com you will discover why these bands are still undiscovered, in some cases after many years.
But they also have a chance to sell tickets to concerts by these groups and so they have a chance -- and of course banner ads -- they have a chance for a number of revenue sources.
Right now they are promoting a tour with Alanis Morissette and Tori Amos which features I think five MP3.com artists. So they'll try to showcase them in hopes that people will rush home and start madly downloading this stuff and paying for it.
Yeah, there's been some question and one of the disappointments for MP3.com, of course, was that they hoped those downloaded songs would be available exclusively over MP3.com, and it hasn't quite turned out that way. But it's the right kind of thing for them to support and it's the right kind of showcase tour to get what we might call MP3 artists out there.
I very much enjoyed reading your coverage of this whole digital music revolution and this stuff is changing by the second, seemingly, today with new deals involving Yahoo! Digital involving Emusic and Liquid Audio. I'm looking at that site for the first time and they actually have some artists I've heard of like Puff Daddy and Louis Armstrong rather than artists like Ray Lane and Paul Thorn on MP3.com.
You wrote in one of your pieces about the fact that the music industry is looking for the next big thing. But little did they know, as you wrote, that it was going to come in sort of this gaseous MP3 format that nobody really has a handle on.
Considering where we are today, where is this going, who are the big winners and can the record companies overcome this and become players in this area?
Well let's look at both sides of the street. I think, first of all, it's too early to pick big winners. We can pick some companies that probably will do well and I think that MP3.com is a good example. Liquid Audio -- the symbol is LQID -- I had some reservations about, but I must say my reservations are fading because they are doing the right kinds of deals with the right people.
The real issue here is that the record companies are absolutely terrified by this. The record companies see a new world coming where they are irrelevant. If you're not going to buy physical goods, if you're not going to buy stuff that record companies can control the physical stream of then the record companies are in trouble. And indeed the record companies are in big trouble and they know it.
Some people cast this in the form that the record companies are worried that there will be too much piracy, that there will be too much of this and that. Sure they're worried about that. What they're really worried about is they're going to become irrelevant and disappear. And in fact a certain amount of that is going to happen.
I think the record companies and those entities that make their living by handling the physical output of record companies -- Virgin record stores, Tower record stores for example -- are in serious trouble. We're going to see the electronic music revolution, or the downloadable digital music revolution, sweep a lot of these things aside.
In fact, MP3.com is giving a pathway to the audience, a route to the audience, for bands that couldn't get signed. Or maybe we should be generous and say haven't yet been signed by the record companies. But in fact there are other artists who will gain from this too. I don't think that -- for example the Stones -- are going to have any trouble setting up a Web site to serve their music to people, to sell their music to people. If you're really well established right now, you can make that transition and you don't much need a record company. At least you don't need 'em right now as much as you did in the past and in the future you may not need 'em.
Now record companies do a lot more than just find artists and pick repertoire and record it and distribute it. They promote the heck out of artists. And so the promotion issue is a big deal. Just as we could agree that Bruce Springsteen or the Stones wouldn't have much trouble getting a Web site up to sell their music, I think we should also acknowledge that there are a heck of a lot of small acts that have record contracts, that do get recorded, that do get distributed, but haven't yet hit big that need something like a record company to provide a force behind them. They don't know how to get Web sites up, they don't know how to do e-commerce, they don't know how to be promoted.
I think we are going to see companies come into existence over the next 18 months that are gradually going to supplant the record companies, that are going to be electronic distribution-oriented entities to help the bands below the Bruce Springsteens, but well above the people who just can't any kind of distribution because frankly their music isn't very good.
So for that reason, the record companies are likely to be losers, the companies that distribute records -- Tower Records, etc. -- are likely to be losers. Winners are going to be the listeners, they're going to be companies like MP3.com and maybe LQID Liquid and others who get in there early. Plus, this class of companies I've just described that aren't yet visible that take the place of many of the functions of the record companies. They are going be really big.
The consumers definitely are the winners here, as they are with so much of the Internet. What's the strongest thing about MP3.com? Is it the name? It's dawning on me that there doesn't seem to be many barriers of entry here. And beyond the name MP3.com, do they really have any special advantage?
Remember the George Bush term "Big Mo?" They've got "Big Mo," they've got momentum and right now that counts for a lot.
Fair enough. Jim, let's turn out attention here to America Online. They've been billing themselves as the next Microsoft but they're starting to look like the paranoid, actually. Recently, as you pointed out and you've written about here, this company has retaliated against Microsoft and Yahoo! as these companies have released this new instant messaging software that allows MSN and Yahoo! users to communicate with the AOL instant messaging types. And it looks like they are tying to lock them out of this.
It seems to me that a company that is billed as the Internet company is seemingly becoming the anti-Internet company. Would you agree?
Well, it sure looks bad for AOL that they had the bad judgement to try to keep users of Microsoft and Yahoo! instant messaging software out of their user base. From their perspective their answer is pretty simple -- all we are doing is defending what is naturally ours. They spent a fortune to buy ICQ from Mirabilis in Israel last year. ICQ is one of American Online two instant messaging products. The other is AOL Instant Messenger -- AIM.
And they've accumulated very substantial user communities, almost 20 million around each of these products. They say that Microsoft and Yahoo! are no better than hackers trying to break in by letting people who want to use Microsoft or Yahoo! instant messaging software to talk to those people.
I can understand both sides of it but my heart is not with AOL. My heart is with the people who believe in open systems here. It is crazy if I happen to use Yahoo! or Microsoft's very good instant messaging chat software but I can't talk to, say Jim Benham, who happens to use ICQ or AIM from AOL. Universality is what the Web is about. Connectiveness is what the Web is about. Not being caught in a ghetto. And AOL is trying to capture its instant messaging users in ghettos.
But are these guys really about the Internet? I've heard it said before by money managers on this show over the last couple of years that the ultimate threat to America Online really is the Internet. Do you agree with that?
I couldn't agree more. In fact, I have this love/hate relationship with AOL. As a stock, it's been a great stock. It's wallowing around now, as you know. Back in April it topped a little over $150. Today it closed a little under $100. So in fact it's lost a third of its value. But I think AOL is really going to roar back here.
AOL, as people who read my column on TheStreet.com tomorrow will find out, is about I think fairly seen to do a deal with AT&T to be able to get on to AT&T's fast access pipes. That requires a lot of tricky work on AT&T's part. But I think that is going to be the outcome of that battle.
AOL is doing all the right things -- except I think for this stupid decision on instant messaging -- to get even bigger and be more prominent. While I said I have a love/hate relationship, I love them as a stock. I love what they are doing. I think the stock's a good one. I think it's a buy under $100. I think on the hate side, I hate the way they treat their customers. I hate that weak watery mediocre content they peddle. I hate the way they've become a kind of a last refuge of those who are afraid of the Web.
I mean they've got 18 million subscribers right now out there. They've got that many because they were there early and we as a people are sometimes afraid of apparently technical things. A lot of those people just stay there because they're there. They even know AOL's not very good. But they don't want to have to set up an ISP account. They don't want to have to cope with this. They still want, "'ding dong, you've got mail." They still want the AOL preferred services.
So yeah, it's certainly true that a big vigorous growing Web, which is exactly what we've got, is not good news in some ways for AOL. But you know this is a $110 billion company with 18 million people paying 22 bucks a month. They are doing a lot of stuff right. They may not be my ISP. They may not be your ISP. But they are the ISP for a heck of a lot of people who pay their bills.
I used to be on AOL because I had a 28,800 modem and I never went on the Internet because it was frustrating as can be trying to download something. I just went in their little gated community and paid their monthly fee and I got all the information I needed. Of course, the content was entirely controlled by America Online.
But what about broadband and America Online? I don't know what the time frame is, but ¿ there's something like only 1 million people who have high-speed access and there are something like 60 million people on the Internet. What happens when little Tommy goes over to his friend's house, sees that they don't have AOL and he's zipping all over the Web through DSL or cable. I just don't see how America Online can survive in that world, where broadband is cheap and where it's in every garage, as they say.
Well, that's a good point, but you know one of the untold stories about AOL is what a great job they've done of sucking up to the RBOCs around the country -- the people who are selling DSL. In fact, I have a fast cable connection. I like it. DSL works ok too. I'm not in love with this cheese ball ADSL that the RBOCs are pushing on American consumers but it's a heck of a lot better than dial-up and so be it for now.
The problem is, people are putting out the story that AOL has been locked out of the fast access market, that their user won't be able to get in. In fact, AOL has been doing deal after deal after deal around the country with the RBOCs, with companies that are putting DSL in. And I think AOL is going to turn out in about 10 months to be the poster child of fast access because they have put together this national grid or network of ways to get into AOL through fast ADSL connections through your local phone company.
If they don't succeed in the cable connection world, that is to say if they don't run up against the two giants -- Excite@Home ATT&T or Time Warner's Road Runner -- they can still do well by playing the DSL side of the street. Now if they can do a deal with either Time Warner's Road Runner or if they can do a deal with AT&T on this problem AT&T has with Excite@Home, then AOL is going to have a leg in each camp and is really going to stand to straddle the business. So I think it's not true that AOL is going to get killed because of the fast access revolution.
I think AOL is going to co-opt the fast access revolution just the way Microsoft co-opts all of these things that come along that we think are going to kill Microsoft and then son-of-a-gun Microsoft's on top again.
You know, we are out of time here, but if you could give me a quick 10-second answer. The only thing I don't understand is how people are going to be able to pay a monthly fee, which right now is about $40 a month, for high-speed access and continue to pay AOL the $21 a month?
What AOL is doing is smart deals with the RBOCs which will have a bundled total bill of about 40 bucks for AOL and your ADSL service.
That sounds pretty good then.
Alright, Jim. Thanks so much. It was the first time we've had you on the show and it was a real honor and I certainly hope you'll do it again with us.
I enjoyed it a lot and thanks for having me. Bye everybody.