Platinum Entertainment, Inc. Reports 17 Percent Revenue Increase In 1998

Business Wire, March 3, 1999

DOWNERS GROVE, Ill.--(BUSINESS WIRE)--March 3, 1999--Platinum Entertainment, Inc. (NASDAQ: PTET) today reported annual net revenues of $40.6 million, a 17 percent increase over 1997. During 1998, the Company significantly reduced its direct to consumer sales efforts from which $1.9 million in net revenues were generated during 1997. Excluding these direct to consumer sales efforts, net revenues for 1998 increased 23 percent over fiscal 1997. Net loss for 1998, before preferred dividend requirements, was $14.8 million, or $2.58 per share, based on 5.7 million weighted average shares outstanding, compared to a loss of $23.5 million, or $4.52 per share, based on 5.2 million weighted average shares outstanding for 1997. The 1998 loss applicable to common shares, after adjustment for preferred dividends, was $3.07.

The Company also reported net revenues for the fourth quarter of $7.4 million, an increase of 23 percent over the $6 million reported in 1997. Net loss for the fourth quarter, before preferred dividend requirements, was $1.55 per share, compared to $2.09 in the fourth quarter of 1997. The fourth quarter 1998 loss applicable to common shares, after adjustment for preferred dividends, was $1.67.

"In 1998 we completely developed and implemented our Internet plan, which has resulted in strategic relationships with Musicmaker.com, MP3.com, Liquid Audio, Amazon.com and Platinum technology," said Steve Devick, president and CEO of Platinum Entertainment. "In addition, the enhanced sales and distribution capabilities of our Atlanta facility will strongly improve our margins going forward, as we become less dependent on costly third-party distribution."

The Company's retail Web site, PlatinumCD.com, opened October 1, 1998, with fewer than 20,000 visitors in the first month of operation. The site then recorded 1.5 million hits in November and more than 3 million hits each month from December 1998 through February 1999. The traffic increase resulted in greater exposure to Platinum's artists and music, and was achieved at no additional advertising expense to the Company.

"The music industry strongly rebounded in 1998 with a 12 percent increase in sales over 1997, and we feel the Internet will continue to fuel that growth in 1999," Devick continued. "When a consumer samples music or shops on the Web we can, for the first time ever, identify that customer and their music tastes. Internet marketing and promotion via e-mail will help both traditional retail and online music sales.

"Our strategy -- to provide quality music content with a variety of strategic partners -- was embraced by the online community," Devick said. "The value of this focused exposure is that it drives consumers to both Internet and traditional retailers, while allowing us to establish a leadership role in the move toward digital distribution."

In 1998, Platinum purchased an equity investment in Reston, VA-based Musicmaker.com (formerly The Music Connection Corporation), called "one of the best sites for buying online" by U.S. News & World Report. The deal exclusively combined thousands of gospel, blues, urban, classical and jazz recordings owned and controlled by Platinum with music catalogs previously licensed by Musicmaker.com, creating the Web's largest "burn and mail" custom CD and music download resource.

Starting April 1, 1999, Musicmaker.com will offer downloads of a new generation of legal, copyright-protected MP3 music files. Using a new technology called Secure MP3, music files are embedded with a transparent "audio watermark" licensed from Aris Technologies, Inc., a recognized leader in audio security. This watermark allows each downloaded song or album to be tracked by Musicmaker.com and other copyright protection agencies. Musicmaker.com also has developed a sophisticated copyright and royalty payment tracking system that will provide music labels with a complete accounting of music downloaded from Musicmaker.com.

"The second most requested keyword submitted to Internet search engines is 'MP3'," said Devick, who noted that Lycos recently created an MP3-specific search engine in response to consumer demand. "This is the most important grass roots movement in music since FM radio." More than 10 million MP3 players already have been downloaded, allowing the playback of MP3 files on personal computers or portable MP3 players, Devick added, with the number of MP3 music consumers expected to double by 2000.

Sales through Platinum Distribution (formerly Intersound Distribution) comprised 65 percent of product sales in 1998 -- compared to 56 percent in 1997. A completely new system incorporating Y2K-compliant accounting and inventory software will allow the Company to more efficiently channel its own products into the marketplace. Margins are significantly improved by the Company's reduced reliance on third-party distribution fees.

Platinum's enhanced infrastructure also allowed the Company to become more aggressive in generating additional revenues from independent music companies seeking distribution of their products to traditional retail and global Internet customers. Sales of third-party label products increased 169 percent in 1998 over the previous year. International revenues topped $1 million, compared to $45,000 in 1997. The expansion of Platinum's suburban Atlanta facility is being directed by Brent Gordon, a former top Warner executive who joined the Company in December from Pacific Coast One-Stop, a $100 million wholesale music and video distributor. In 1999, the Company has an opportunity to supplement its staff and artist roster due to announced cuts stemming from the recently completed merger between Universal and PolyGram.