Today's IPO of Internet radio company Pandora is sure to put even more of a spotlight on digital music. The company raised its IPO price to $16 - it was originally slated to go between $9 and $11 - and it added another 1 million shares to the initial offering. On the first morning of trading, shares of Pandora rose above $20 - soaring 50% in the first minutes before settling down in the initial hours -- turning a once-struggling webcaster into a company with a market value around $3.3 billion.
But while music companies may have successful IPOs, and while positive investor sentiment may push their stocks well beyond their IPO prices, music stocks have not always been a good long-term investment. Both institutional investors who took part in a music company's IPO and retail investors who came in later have often lost a big chunk of their initial investment.
The IPOs were in the late 1990s turned out to be especially bad investments if held for a number of years. That was a time when investors lapped up Internet stocks with dismal financials and unproven business models (Pandora has neither problem, by the way). Even the IPOs in the 2000s have turned out to have been poor investments over the long term.
Here is a sample of music IPOs going back to 1999.
-- Warner Music Group went public on May 12, 2005, selling 32.6 million shares at $17 -- both the offering share price and the number sold were reduced leading up to the IPO, according to reports. Shares closed at $16.40 at the end of the first day of trading, 3.5% lower than the IPO price. The stock initially performed well, rising to $19.27 at the end of 2005 and hitting $31 on May 5, 2006. But shares closed out 2007 at $6.06 and have not risen above $10 since then. Access Industries' winning bid for Warner was $8.25 per share in May. The deal is expected to close in the fourth quarter.
-- Digital Music Group. The Sacramento-based digital distributor started trading at $9.75 on February 2, 2006, raising $38 million on the sale of 3.9 million shares. Investors were in positive territory for a brief time as shares rose to $10.09 during the first quarter of 2006 but dropped to $6.25 by the fourth quarter. A year later, after a three-for-one split, the share price was at only $10.50. Digital Music Group merged with The Orchard in 2007 and began trading under the name The Orchard. The company was acquired by Dimensional Associates in 2010.
-- MP3.com went public in July 1999 at $28 per share, raising $344.4 million on the sale of 12.3 million shares. Shares rose as high as $105 on that first day of trading. But the stock declined dramatically over the next two years. In 2000 the company lost a copyright infringement lawsuit brought by Universal Music Group. It was acquired by Vivendi Universal for $372 million, or $5 per share, in May 2001.
-- Valley Media's IPO in 1999 raised $56 million to fuel the company's expansion. The country's leading music and video wholesaler at the time, Valley generated revenue of nearly $900 million that year. But the company filed for bankruptcy in 2001 its inventory was liquidated the following year.
-- Musicmaker.com, a provider of customized CD compilations, went public on July 7, 1999 at $14 per share. The stock closed that first day at $23.94. Exemplifying the craze for all things Internet at the time, the company had a net loss of $4.65 million on revenue of just $74,000 in 1998. The web site shut down and began liquidating assets in January 2001.
-- Launch Media, an online music site, had its IPO on April 23, 1999. It raised nearly $75 million from shares priced at $22 each. The company was purchased by Yahoo! in 2001 for $12 million, or $0.92 per share.
Some other music stocks have been publicly traded but were spun off from parent companies without having an IPO. Live Nation was spun off from Clear Channel in 2005. Ticketmaster was spun off from IAC in 2008. Roxio, which acquired Napster in 2002 and immediately assumed the Napster name, was spun off from parent company Adaptec in 2001.