Net music site Vitaminic shows healthy growth

It sounds like a genuine blast from the past: an online music site on an acquisition binge, expanding quickly around the world, with a stock price that has actually climbed since the beginning of the year.
Written by John Borland, Contributor on
It sounds like a genuine blast from the past: an online music site on an acquisition binge, expanding quickly around the world, with a stock price that has actually climbed since the beginning of the year.

But don't look in the United States. The company is Vitaminic, the independent Milan, Italy-based site that has carved out a space in Europe somewhere between MTVi and MP3.com, with more success than either inside its own markets.

The 3-year-old company has a little of the same rocky history of shifting business models that's familiar in the United States. But Vitaminic is attracting applause from analysts as it refocuses on farming out music to other corporations hungry for tunes to use in marketing campaigns or on their own Web sites.

"It's a good company," said Jupiter Research analyst Aram Sinnreich, noting that Vitaminic has played its international cards skillfully, even if its brand name is little known in the United States. "It pays to be diversified across different markets."

The surge in interest in the Italian company is a good sign for similar companies in the United States. One of the closest analogues might be Listen.com, which has moved from being a consumer-focused music portal to a service that syndicates its online radio and music classifications to other Web sites and offline businesses. MP3.com, before its acquisition by Universal Music Group, had also begun a Muzak-like service that offered background music feeds for outside businesses.

Vitaminic's accolades are hardly a guarantee of success. But they are a sign that some independent models are developing in an online music market otherwise populated almost wholly by major-label affiliates and rising piles of defunct venture-funded start-ups.

How long such efforts can last is an open question, however. Like some of its peers, Vitaminic relies on music being widely adopted as a standard tease in marketing campaigns. Instead of Pepsico simply showing Britney Spears on television, the company might give Pepsi lovers a one-month subscription to a music service, for example--provided by Vitaminic or a rival.

That's a likely scenario, analysts say. But it will take time and will require consumers to warm further to the idea of multimedia over high-speed Internet connections.

The trick to Vitaminic's appeal, at least from a business perspective, lies it in its relatively subdued ambitions.

Company executives aren't bullish on consumers' demand for online music, at least not to the point where they believe that millions of people are ready to pay for songs online.

"We don't think users, except for with the Napster phenomenon, are really ready to go online to buy," said Gianluca Grechi, managing director of Vitaminic's USA operations. Give the market another 12 to 18 months and this might change, he says. But for now, the company is keeping the bulk of its focus on selling to other businesses that want to use music in their own marketing, advertising or online campaigns.

Here the company has had some success drawing corporate dollars. It has created compilation CDs for sports giant FILA, and it has created subscription services for French and British portals Wanadoo and Line One.

Grechi says the company is moving into supporting more of these subscription offers, in which a company might offer a month of free music on its site to customers who buy a pair of shoes or a CD player. The music would serve as an attraction to keep people coming back to the site--and keep the brand high in customers' minds.

That's an attractive idea, at least in theory, analysts say.

"It makes advertising much more of an entertainment experience," said P J McNealy, a media analyst for the GartnerG2 research group. But the real money from this type of marketing isn't likely to start flowing until 2002 or 2003, as consumers warm to the idea, he cautioned.

In the meantime, however, Vitaminic has not only managed to avoid sinking, but has been one of the only independent music companies to launch its own acquisition campaign in the past year.

Its most visible move in the United States, where it still keeps a low profile, was the buyout of the Internet Underground Music Archive after that venerable site was shuttered by previous parent EMusic. It also purchased European sites Peoplesound and FranceMP3.com.

Its stock performance, while not stellar, has still far outstripped that of most Net companies this year. The shares have fallen more than 15 percent this month, yet they remain about 30 percent higher than their low point at the beginning of January.

Nor is Vitaminic abandoning the consumer market altogether. The site attracts the most traffic of any music news and information site in the European market, with its lead growing after a pair of recent acquisitions, according to researcher Jupiter Media Metrix.

Even as it pursues the corporate market, the site has kicked off a subscription service in advance of the major label-backed MusicNet and Pressplay services, offering access to independent and unsigned artists.

But like its US counterparts, the company lacks unrestricted access to the major labels' full catalogs of music for subscriptions. Vitaminic does have deals with big labels in Europe for some limited distribution and with Sony Music Entertainment, BMG Entertainment and Universal Music Group for limited downloads in the United States.

This isn't enough to put the company on safe ground, analysts say. If the big labels do turn their attention to the European market, Vitaminic's grace period could come to the same crashing finale that has met many US companies.

"There's a lot of competition," McNealy said. "There is a market for (Vitaminic-like services). But only if the Big Five labels allow it."

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