Lack of marketing punch has ArtistDirect on the ropes.

To get a sense of what's gone wrong at ArtistDirect Inc., the L.A.-based record company run by billionaire Ted Field, consider the experience of talent manager George Sullivan and his client Tommy Abate.

Abate, a rapper who goes by the name Poverty, has gotten star treatment from the company's flagship label, ArtistDirect Records. Without releasing so much as a single, he has been lavished with, among other things, a Cadillac Escalade and introductions to top stars. Field, an industry legend credited with launching the careers of megastars Snoop Dogg and Dr. Dre, even has time to get on the phone with Sullivan four times a week.

"Ted will call anybody back. Pie's real down to earth like that;' Sullivan said.

But in areas more crucial to Abate's success, ArtistDirect Records has fallen short.

It arranged only one "street team" marketing effort to stir all-important buzz for the rapper. It's failed to get the tracks he's recorded into the hands of disc jockeys, the key tastemakers in the hip-hop world who create "mix tapes" played for potential fans at clubs and on the radio.

"There's no reputation there and no tools," said Sullivan. "I knew it was going to be an uphill baffle. It's just getting bloodier."

ArtistDirect executives say it's not how much money goes into marketing but the way in which the money is being spent. Even so, it's probably not the picture shareholders anticipated when the company named Field its chairman and chief executive two years ago. At the time, there were high hopes that the cofounder of the successful and controversial Interscope Records could repeat the magic he created there.

Field and his partner, Jimmy Iovine, managed to sell their stake in Interscope for $330 million to Universal Music Group. But ArtistDirect Records, an unusual partnership of Fields, ArtistDirect and BMG Entertainment, has lost $42.7 million (none of which was shouldered by Fields), weakening the parent company to the point that its auditor, KPMG, has questioned its ability to survive.

Na marketing muscle

The label was launched with fanfare in June 2001, shortly after Field's arrival. ArtistDirect agreed to fund it with $50 million over five years and despite a profit split that was unusually generous to Field, the stock soared, reaching a peak of $15.24 in December 2001.

But missteps were to follow.

In August of that year, ArtistDirect Records signed Canadian-born Custom after a noisy bidding war with Dreamworks SKG. Custom's debut album, "Fast," sold a mere 64,000 units, according to Soundscan, a division of VNU.

The partnership also advanced $12 million to acts that included the Miami-based hip-hop duo Smilez & Southstar and Orange County rock band Mad at Gravity. The seven albums the label has released, including two from British indie rock star Badly Drawn Boy, have only sold 459,000 units altogether.

Part of ArtistDirect's problem is that it doesn't have the marketing muscle to compete with labels fully owned by five major music giants.

ArtistDirect and its rivals must get the attention of both fans and program directors at radio stations like KROQ-FM (106.7), which is considered to one of the nation's most influential rock music stations.

A label can spend as much as $10 million to promote a single album. That includes assembling the "street teams"--guerilla marketers who do everything from plastering posters on telephone polls to giving out free CDs at clubs. Particularly important in promoting hip-hop and R&B acts: a label's stable of hit acts, which can give unknown musicians a shred of credibility.

"(KROQ program director) Kevin Weatherly is inundated with new acts and everyone's trying to hook up with the top DJ. It's really tough," admitted Tony Berg, an ArtistDirect executive vice president who, along with Field, industry veteran Gary Harris and producer Ross Robinson, forms the label's braintrust.

While ArtistDirect has a distribution agreement with BMG, one of the big five, it doesn't have the deep pockets of, say, Capitol Records, a division of British music giant EMI. Parent company ArtistDirect said it ended 2002 with just $2 million in cash on hand, compared with $25 million at the end of 2001. It lost $48.2 million last year on revenues of $6 million.

The record label targeted eight cities, including New York and L.A., for a guerilla marketing effort for Poverty last year. It lost a key player in its meager marketing machine last February when Marc Benesch, Field's former marketing czar at Interscope, died after a lengthy battle with cancer.

Without a major act on the label, ArtistDirect's talent must improvise. Poverty has hooked up with tours of other artists, including the popular rapper Mos Def, as a way of getting more attention. He's now angling to open for hip hop sensation 50 Cent's upcoming concert in Portland.

Overextended 

Tony Berg, ArtistDirect's executive vice president, says the issue is not just spending money. "It's about smart marketing and hitting the right target. But more importantly, it's about the music," he said.

Still, there are other factors at play. While ArtistDirect owns 65 percent of the label after a $10 million cash infusion last August, it has no say over the operations. Field, who straddles roles at the top of both the parent and the label, calls the shots. ArtistDirect is committed to giving the label an additional $2.75 million in 2003 and $12 million in 2004.

ArtistDirect isn't having any greater luck with another record label, the wholly owned subsidiary called iMusic. According to cofounder Marc Geiger, who stepped aside as chairman and chief executive to make room for Field and who is now vice chairman, it's the more dependable of the two labels. But it's losing money too.

Unlike ArtistDirect Records, iMusic signs up one- to-three record deals with established acts cast off by major labels, such as rapper Warren G--a former Snoop Dogg sidekick--and John Doe, founder of the punk band X.

The records are sold via the Internet and retail outlets, but little is spent on traditional marketing. Artists help out by selling their albums at concerts.

ArtistDirect said iMusic lost $1.4 million on sales of just $677,000 last year, representing about 20,000 units. The biggest-selling act, a group formed by Johnny Marr, has sold only 16,000 since its album was released last year.

Field doesn't play a role in running the division, leaving it in Geiger's hands. But the company admits that Field could negatively influence the label's performance because of his "significant conflict of interest" stemming from his 30 percent stake in ArtistDirect Records, which had recently signed an over-the-hill act of its own, moody alt-rock band The Cure, in order to give it more credibility.

But it may need more than an old music act. "Poverty's got the tools to take the label over the top," maintained Sullivan. "Now all that ArtistDirect needs to do is find a way to get both of us to the top."