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Sacramento Company Plans Public Stock Offering for Online Music Sales

Posted on: Saturday, 1 October 2005, 00:00 CDT

By Clint Swett, The Sacramento Bee, Calif.

Oct. 1--Hoping to ride the growing wave of digital music downloads, a Sacramento company plans a public stock offering to finance its business of selling music on such sites as Apple's iTunes music store.

In documents filed filed Thursday with the Securities and Exchange Commission, Digital Music Group Inc. didn't reveal how many shares it plans to sell or how much money it hopes to raise.

There also is no date set for the offering, which is being handled by I-Bankers Securities Inc., an underwriter specializing in small growth companies.

DMG is a combination of Sacramento-based Digital Musicworks International and the assets of Rio Bravo Entertainment, a digital music company based in Austin, Texas.

In its filing, DMG projects that digital downloads will grow from 1 percent of the $32 billion worldwide music market in 2004 to 25 percent by 2009.

While DMG touts the growth potential, its component companies, Digital Musicworks and Rio Bravo, lost a combined $1.52 million between February 2004 and June 2005 on revenue of $296,692, the documents show. The majority of their expenses came from buying digital rights to music.

The filing said the company expects "continuing losses for the foreseeable future."

DMG officials could not be reached for comment. In the filing, they say they have the rights to sell about 200,000 songs on 11 digital stores, such as iTunes, MSN Music, RealNetworks, Napster and the Wal-Mart Music Store.

The company said 17,000 of its songs already are for sale on those and other sites and that 80 percent of its revenue comes from sales at the iTunes store. It has an agreement to sell music on iTunes through April 2007.

DMG is headed by Mitchell Koulouris, who founded Digital Musicworks International with his brother, Peter, in February 2004.

At the time the company was focused on signing new artists and selling their music digitally rather than through record stores. It reportedly came close to signing local favorite Jackie Greene, who in the end opted for a label owned by industry giant Universal Music.

The company has apparently changed its emphasis.

"Our focus is on acquiring (digital) rights to back catalog, out-of-print recordings, past hits and independent label recordings, including those not currently available for sale in traditional music retailers," SEC filing said.

A list of DMG's top selling downloads is dominated by oldies artists such as Fats Domino, Jan & Dean and the Archies.

While the digital music business is very crowded, the oldies niche could be a profitable one, said Phil Leigh, an analyst with Inside Digital Media in Tampa, Fla.

Leigh likened that market to the late-night TV ads that sprang up about 20 years ago selling oldies compilations.

He cautioned that licensing oldies is a complicated proposition. DMG must reach an agreement with both the artist and the composer. And if any of the principals have died, DMG must negotiate with the estate.

"Then you are dealing with heirs and lawyers," he said. "That's about as complicated as it gets."

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Copyright (c) 2005, The Sacramento Bee, Calif.

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Source: The Sacramento Bee

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