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ArtistDirect Restructuring Interest in Record Label

ArtistDirect Restructuring Interest in Record Label

By RiSHAWN BIDDLE

Staff Reporter

Online firm ArtistDirect Inc.’s expensive effort to transform itself into a traditional music label may soon come to an end.

The L.A.-based company plans to restructure its five-year agreement to finance ArtistDirect Records, the joint venture it co-owns with Chairman and Chief Executive Frederick “Ted” Field and BMG, a division of German media giant Bertelsmann AG, said Chief Financial Officer Thomas Fuelling.

As part of the plan, the financially ailing company will look for outside investors to assume its obligation to pour another $5 million into ArtistDirect Records.

“We’re primarily focused on securing new money for ArtistDirect Records,” said Fuelling. “Hopefully we’ll be able to make an announcement soon.”

According to Fuelling, the company has been in talks with Sanctuary Group, a New York-based music company whose acts include the glam rock act Kiss. In an e-mail, Sanctuary Group spokeswoman Angie Jenkison declined comment.

Field, the department store heir and founder of Interscope Records, launched ArtistDirect Records with fanfare in June 2001 shortly after his arrival at ArtistDirect, under an arrangement in which the company would fund it with $50 million over five years while Field got a generous profit split.

Since then, ArtistDirect has lost $45 million on the label as it struggled to compete in the music business without the marketing muscle of the five major music giants. Three months ago, ArtistDirect Records received $900,000 in working capital from outside investors, issuing convertible promissory notes that come due in 2005, according to the company’s most recent 10Q filing with the Securities and Exchange Commission.

The notes can be converted into an unspecified equity stake when or if ArtistDirect raises another $1.85 million in new funding, according to the filing.

In addition, Field chipped in $250,000 the first time the billionaire music mogul invested any of his own money into the label.

None of the acts in the ArtistDirect Records stable including Canadian-born rocker Custom, signed after a noisy bidding war with DreamWorks SKG has made much of an impact. For example, hip-hop artist Stagga Lee dropped off the Billboard rhythm & blues charts after four months, rising no higher than No. 24.

Last year, the parent company had to advance another $10 million into the label to keep it afloat. But it no longer has the resources to continue financing it.

In April, the company’s auditor, KPMG, warned that losses from the record label and its e-commerce businesses had raised “substantial doubt” about its viability as a going concern.

The company lost $5.4 million in the second quarter ended June 30, compared with a loss of $15 million for the like period a year earlier. Over the same period, cash on hand was reduced to $1.7 million from $2.2 million.

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