- The Washington Times - Monday, November 27, 2000

Musicmaker.com is struggling to right itself after a really bad year.

Desperate not to be dropped from Nasdaq, the Reston on-line music firm on Nov. 3 conducted a 10-for-1 reverse stock, turning every ten of its shares into one. The move pushed the shares up to $3.40 from 34 cents.

"This is a big deal because this is a company that had a stock price of well over $100 originally," said Ric Dube, an analyst with digital entertainment research firm Webnoize in Cambridge, Mass.

The stock has been declining steadily since the company went public in the summer of 1999, and even after the reverse stock split. It closed Friday at $3.20.

Musicmaker's technology lets music lovers pick tunes on line from some 16,000 tracks in genres like classical, jazz, Latin and Christian music. It then creates a CD and mails it to consumers for a fee.

The company, which has offices in Reston and New York, had planned to have kiosks in record stores that would make the CDs on the spot. But Daren Gill, senior vice president for Musicmaker, said the company decided to nix the idea.

What hurt Musicmaker is that the major record labels, which control the vast majority of popular music, have been unwilling to deal with on-line music companies. Musicmaker struck a deal with EMI Records when it went public, with the label giving it access to part of its catalog.

"The thought was that we've got one of the majors, we figured we could get more majors as we go along and prove our model," Mr. Gill said.

But that didn't happen.

The advent of Napster, an on-line service that lets users swap songs for free, also hurt the company, because "why would you pay for a CD that you have to wait to show up in the mail if you can get all the songs that you want for free, immediately," Mr. Dube said.

Doing a reverse stock split was the latest in a string of efforts Musicmaker has made to survive. In February, it hired an investment firm to explore merger and acquisition opportunities. So far, nothing has come through.

The dot-com is also being sued by shareholders for misrepresenting its potential.

Since the start of the year the company has also had to make accounting adjustments: It had said it received $3.3 million in revenues, when in fact the money was being paid to them over time.

In early September Musicmaker announced its reorganization plan, and laid off 30 percent of its staff, keeping only about 60 workers. The company said it will use the resources to expand sales and marketing.

Shortly after two top executives resigned Robert Bernardi as chief executive officer and Larry Lawrence as vice president of global marketing. Musicmaker's co-founder, Devarajan Puthukarai, is now CEO.

While the saga unfolded, the company's shares slipped steadily, diminishing its value.

For example, EMI, which held half of Musicmaker while it was private, sold 13 percent of its stock when the on-line music company went public. Nearly 18 months later, the 37 percent EMI still owns are worth less than the 13 percent it sold last summer, Mr. Dube estimated.

"It's just the business they are in. None of the companies that do what they do have done very well," Mr. Dube said.

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