Online music CD retailer N2K said Tuesday it will fire an undisclosed number of workers and scale back its Internet music label to focus on artists and songs that are more popular with Internet users.
As part of the restructuring, N2K (NTKI), which operates Music Boulevard, will take a one-time charge of US$5 million to $7 million in its third quarter to cover the cost of the firings.
N2K, based in New York, makes most of its money by running an online music catalog that delivers CDs through the mail. It's also trying to make a name for its record label, N2K Encoded Music, which signs up artists, produces albums, and sells music directly to customers over the Internet, using downloadable audio files.
N2K's online music publishing business is designed to draw traffic to its main site, which faces competition from No. 1 CD retailer CDNow as well as Amazon.com. Eventually, it could compete with the likes of Sony, Virgin, and other traditional big labels.
Analysts said the restructuring is a sign that the music industry and the Net still have a shaky relationship, especially when it comes to downloadable music.
"The music industry views online delivery as a poison apple rather than a panacea," said Paul Johnson, an analyst at International Data Corp. "The music industry as a whole is not willing make a fundamental shift, but the opportunity for players like N2K exists."
The restructuring will result in a $10 million improvement in its operating income through 1999, the company said. Since N2K went public last year, it has reported widening losses.
In the most recent quarter, it reported a loss of $16.4 million, or $1.18 a share, more than triple the loss it reported in the same period last year. Marketing expenditures accounted for part of the loss as did N2K's investment in operations, such as Encoded Music, that are expected to pay off in the future.
The company is scaling back its ambitions for now.
"We should be more focused on what people are buying on the Internet," said CEO Larry Rosen. "As the Internet grows up more we can be much more targeted, more cost effective."
Rosen said by examining what people are buying on the company's catalog site, the company can sign artists that will have a good Net audience.
N2K also announced the formation of an imprint label under the Encoded Music label, called Digital Artists. The label just signed former Eurythmics member Dave Stewart as its first artist. His release will be available in both CD and digital form. Rosen also said a CD called Miles Ahead -- containing various tributes to Miles Davis performed at an N2K launch event for its MilesDavis.com site -- will be released in September.
