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RelativeResourceManager - Live365 Sustaining the Internet...

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Live365: Sustaining the Internet Radio Revolution October 29, 2002 The case was written by Joel West, College of Business, San José State University, with research assistance from Parthiv Rawal. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation The case was compiled from published sources and interviews. © 2002 Joel West
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Revised October 2002 © 2002 Joel West, Ph.D. Raghav Gupta looked at the spreadsheets and scowled. As chief operating officer of Live365, Gupta was charged with planning and implementing the company’s financial performance, as reflected by the projections for the coming 12 months. On the one hand, by scaling back its aspirations Live365 had survived the turbulence of the Internet radio industry that had claimed many of its competitors. The stock market bubble of the .com companies had collapsed, and with it the opportunity and venture capital funding opportunities that had sustained these companies. Many of these companies were now gone, while even Silicon Valley’s blue-chip technology companies had announced unprecedented layoffs; unemployment was nearing a 20-year high. And while Live365 had lost a fight with record companies over webcasting royalties, the end of the dispute had resolved an uncertainty that had loomed over the industry for almost two years. Meanwhile, the company had used the new royalty fees to migrate many of its free customers to becoming paying ones. On the other hand, many of the cost reductions had come at a price. In 2001 and earlier in 2002, Live365 had lost several key executives. One of the resignations had been CEO and company founder Alex Sanford. Pending recruitment of a permanent replacement, this left Gupta as acting CEO despite being among the company’s youngest employees. And while Live365 was developing new sources of revenue, none yet matched the company’s original projections, which assumed a vibrant Internet advertising market that valued the eyeballs and ears of the company’s many listeners. The company’s hoped-for “radio revolution” seemed stalled, perhaps permanently, by a combination of economic and political factors. So while the company was operating and paying its bills, it still had not found the upside it had hoped for three years earlier when it launched its service. As the company’s leader, it fell to Gupta and his management team to find a way forward. Prerecorded Music Industry Sales of prerecorded music is a $40 billion industry. Approximately one-third of those sales ($14 billion in 2000) are made in the United States, with the bulk of those in the compact disc format. (See Exhibit A). Yet in 2001 music sales were down markedly: year-on-year unit CD sales dropped 6.5 percent, with revenues off 3.3 percent.
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