Edmonds-based NetMusic is a hit

EDMONDS – Glen Starchman, chief executive of NetMusic Entertainment Corp., barely pauses his work while he talks about the rapidly expanding business he oversees.

He’s been busy.

In the past three months alone, the company has merged with one firm, acquired another and purchased a major stake in a third.

During that time, it also transformed from a privately held company into a public one, moved from Seattle to Edmonds and saw sales leap ahead by more than 300 percent.

Location: Edmonds Employees: 10 Founded: 1995; incorporated 2000 Stock: NTMT on the Over the Counter market Web site: www.netmusic.com

The result has been NetMusic’s fast ascent from obscurity into one of the Internet’s major providers of digital music.

“It’s been a crazy couple of months,” the 33-year-old Starchman summed up in his nonchalant style last week.

If future success can be judged by how much a company skimps on office furniture, NetMusic will indeed do well.

As it finishes moving its headquarters from Seattle to downtown Edmonds, NetMusic’s office in a quiet upstairs corner of the Old Milltown Antique Mall is sparse. Besides two desks and a rack of computer server equipment, there is nearly nothing. The phones are camping out on the office floors.

It seems an unlikely headquarters for a “global digital media company.”

NetMusic’s Web site, netmusic.com, actually dates back to 1995. That’s when a Seattle musician launched it as an online directory of music Web sites.

An experienced technology and business consultant, Starchman previously worked with a number of online businesses, including the former Fine.com and kiss.com in the Puget Sound area. He also was the chief technology officer at a Connecticut venture capital firm.

Starchman lived in Edmonds as a teenager, and his wife has family here as well, so the couple settled nearby a few years ago.

After taking time off, Starchman joined NetMusic in 2003, just as it was about to reinvent itself.

Since then, the site has switched into offering songs and albums in downloadable MP3 form, as well as CDs, DVDs and digital players. Individual MP3 songs can be bought at NetMusic and affiliated sites for 99 cents each, or $9.99 an album.

In contrast to bigger rivals, NetMusic’s goal has been offer music from artists not always found on major music labels.

“The focus of the company from the very beginning was the independent artist,” Starchman said.

That doesn’t mean only artists you’ve never heard of, however.

Many acts who have become well-known by putting out albums on a major label later turn to the independent market. Also, so-called indie rock and other genres have received wider recognition in recent years.

Thus, artists featured at NetMusic’s sites include such names as Coldplay, Clint Black, Charlie Daniels Band and NOFX. The site’s even selling the Christmas album cut by William Hung, the not-so-good vocalist from “American Idol.”

At the same time, the site also sells albums by obscure bands still looking for fame.

In all, NetMusic’s sites feature roughly one million tracks from about 4,000 different music labels.

That deep catalog is due in part to the company’s acquisition of Los Angeles-based Audio Lunchbox earlier this month.

That followed NetMusic’s merger in November with Ultimate Jukebox, which is developing Web-connected, jukebox-like devices that could play thousands of songs in bars, clubs and restaurants. NetMusic became a publicly traded company through the merger.

So far, NetMusic’s reputation has grown mostly through word of mouth and via fans of featured artists at its sites.

“We have an extraordinarily dedicated customer base,” Starchman said.

That’s an important asset for such a site, said Paul Resnikoff, a former music industry executive and editor of Digital Music News. While giant music sites try to find a money-making formula to cover their large costs, smaller operations such as NetMusic can carve out a niche by catering to specific groups of music fans.

“It’s a lower crop of buyers, but those buyers are buying more per person,” Resnikoff said.

Because digital music still account for less than 5 percent of total music industry sales, he added it’s too early to tell which companies will end up on top.

Also, the digital music sites still are competing against the illicit, but usually free, trading of music that persists on the Web despite legal threats.

“The lawsuits may be scaring away some people, but the peer-to-peer file sharing services still have huge numbers,” he said.

Starchman can point to NetMusic’s own big numbers. In November, before buying Audio Lunchbox, NetMusic’s sales were up 320 percent from October. His site sold more digital media players in November than the previous three months combined, he added.

After the new year starts, the redesigned Web sites also will offer video-on-demand, thanks to a recent deal with a Seattle company.

Though its a publicly traded company with a low-profile Over the Counter stock, NetMusic has mainly relied on an unnamed angel investor so far. Starchman said he wants to reach out to other potential investors and also move the company’s stock to a higher-profile trading market.

Joseph de Beauchamp, an analyst for World Financial News Network, reported that NetMusic’s gross profit in its first full year of operations could exceed $271,000 on sales of nearly $5.7 million. He expects that to multiply rapidly.

De Beauchamp said he thinks NetMusic could be particularly good at delivering multi-media content to the education sector.

With cellphones incorporating MP3 players and even video, Starchman’s high on his company’s position as the digital music market keeps evolving.

“The rules certainly aren’t written yet, and there are a lot of gigantic changes coming down the pike,” he said.

When asked about competitors, he is blunt.

“We acquired them,” he said. “Audio Lunchbox was the main competition, and we have our sights set much higher.”

Reporter Eric Fetters: 425-339-3453 or fetters@heraldnet.com.