Investors Cheered by Field's Plan to Reshape ArtistDirect
By CONOR DOUGHERTY
When ArtistDirect Inc. positioned itself as a multi-faceted dot-com, investors treated it like every other high-flying Internet play: a passionate love affair followed by abandonment.
Last year, with its shares trading below $1, the company faced delisting by the Nasdaq National Market as well as hard questions about whether it had a viable future.
Enter Ted Field, founder of Interscope Records and billionaire scion of the Marshall Field's retail fortune, who since taking over last June has slashed ArtistDirect's Internet operations, shaken off its talent agency business, and allocated the bulk of its resources towards its new record venture, ArtistDirect Recordings Inc.
And while the company has yet to see a dime in profits, investors have taken note, sending its shares on a steady climb.
Shortly after Field was hired, ArtistDirect executed a 1:10 reverse stock split in order to avoid delisting. After the split, the stock began trading at $5.25. The price has since risen to close at $11.20 on Jan. 16, off from its Dec. 27 52-week high of $15.24.
While some of the climb can be attributed to a $2 million stock buyback $170,000 had been spent as of third quarter 2001, according to Jim Carroll, the company's chief financial officer the new business plan also is seen as a factor.
"All they need is one of those (artists) to become a gold or platinum act and it changes the whole dynamic of the company," said Jeff Vilensky, an analyst who covers ArtistDirect for Bear, Stearns & Co.
Vilensky pointed to Custom, a much-buzzed-about alternative rock act recently signed to ArtistDirect Recordings.
"I know it's a somewhat established act that doesn't ensure it's going to sell or even get on the charts but I'd rather see (ArtistDirect) at bat than not."
The new focus has supplied this former dot-com at least a path to profitability, though it should be remembered that this is the record business perhaps eclipsed only by the movies in terms of financial capriciousness. Still, investors appear to be cheered.
Field acted quickly to trim away ArtistDirect's operations that had little chance of turning a profit in the near future, overseeing the cutbacks in the Internet operation and the dissolution of the talent business.
Three days into the new year, he engineered an unusual deal in which ArtistDirect traded its talent agency business including two of its agents to Creative Artists Agency in exchange for representation.
He has hired music industry veterans to assist with the new label, which has since signed multiple acts and plans to release albums throughout 2002.
In late November ArtistDirect inked a North American distribution agreement with BMG, the music division of Bertelsmann AG. Under the terms of the agreement, BMG will distribute the ArtistDirect Recordings' releases in North America, for which BMG received a minority stake. BMG also will provide funding.
Now all ArtistDirect needs is a hit record.
"I think the focus has shifted because we're not stupid," said Carroll. "If you can't make money in one business, it doesn't make sense to stay in unless you're convinced it's going to work. We're not totally convinced the advertising market is going to come back and support a bunch of companies throwing up Web sites."
ArtistDirect reported a net loss of $19.6 million ($5.48 per diluted share) for the third quarter ended Sept. 30, compared with a loss of $16.9 million ($4.53 a share) in the like year-earlier quarter.
Third quarter revenues were $2.3 million, down from $5.6 million in the third quarter of 2000. As of Sept. 30, 2001, ArtistDirect had $40.7 million in cash.
As for Field, the company offered him a deal that would be tough to turn down.
According to SEC filings, ArtistDirect Recordings Inc. exists as a partnership between the parent company and Field, its chief executive, with each holding a 50 percent stake. The company, however, has agreed to front all the money for label operations and incur all the losses. Field received his half in exchange for his services as chief executive, for which he is paid salary of $500,000 and 3 million option shares exercisable at 75 cents a share. Using the Jan. 16 closing, Field has already made a paper profit of more than $31 million.
"We felt management talent like his doesn't grow on trees, and the fact that he is running both the label and ArtistDirect is a good thing," Carroll said. "If he were just running the label we would lose the benefits of his talents in running the company, and he would have not direct responsibility to our shareholders."
Financial Editor Anthony Palazzo is off this week.
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