The European online music retailer has gone into voluntary liquidation.
UK-based Boxman wasn’t another Boo. It had a potentially viable business model, an experienced management team, and kept tight control of its costs. Nonetheless, the company always knew it would need substantial amounts of cash to build its brand before it reached profitability. Its IPO was scheduled for April this year, but it had to be cancelled due to the crash in tech stocks, and the market conditions since made it impossible to reschedule.
The company’s access to capital was further limited, ironically because its existing shareholding base was quite wide. Nobody held more than 4% of the company, so shareholders had too little to lose to risk putting extra capital in after new economy gloom set in. A large shareholder could have brought the company under its control in exchange for providing cashflow. As it was, the company was left to burn through its capital and collapse.
Boxman’s failure makes it clear that companies no longer see particularly large profits in B2C operations, regarding them instead as a natural evolution from existing methods of distribution. Why spend millions creating an Internet retail start-up when existing mail-order firms already have most of the resources necessary? And why spend millions establishing a brand when retail firms have spent years building their own?
The future for B2C music, apart from sites like Amazon that have already established market dominance, is in retailer-branded sites like virginmega.com and in record company-owned sites like BMG’s cdnow.com. Similar consolidation will happen in other B2C sectors with established players and brands. Effectively, the gold rush is over. The market looks more like most mature markets, where no investor would even consider subsidizing a loss-making startup for an indefinite number of years in the hope of vague unspecified future profits. Funding will come only to clearly defined concepts that other people aren’t already implementing.
