NEW YORK (CNNfn) - MP3.com Inc. and two of the biggest music companies on Friday settled their copyright dispute, paving the way for these bitter adversaries put aside their legal dispute and focus again on what's most important - making money.|
The pact, expected by experts to be followed by similar deals with the remaining three music giants, frees the parties to go forward with their plans to explore and exploit the phenomenon of music on the Web.
Along the way, the agreement could represent the beginning of a "land rush" in the online music service arena, spurred by the growth of Web sites that allow users to sample and share music, and nourished by signs the music industry is ready to work with even a boisterous enemy such as MP3.com.
"Now that the labels are indicating that they are willing to give licenses out for at least some kinds of music service ventures, the floodgates are opening and anyone who wants to be a big player in this space in 2001-2002 had better get moving now," said Eric Scheirer, Media and Entertainment analyst at Forrester Research.
MP3.com's (MPPP: Research, Estimates) deal with Warner Music Group and Bertelsmann AG's BMG licenses the company to use Warner and BMG-controlled recordings from thousands of artists, ranging from Whitney Houston to Eric Clapton, on its My.MP3.com's service.
The service allows MP3.com visitors to listen on a computer anywhere to music from popular recording artists, after proving to MP3.com that they owned the CD.
Deals with other music majors expected soon
MP3.com has yet to resolve lawsuits from the three remaining music giants -- Sony Music Entertainment, Seagram Co.'s Universal Music Group and EMI Group PLC - although all are expected to reach a settlement in coming weeks.
Financial terms were not disclosed, but sources say the Warner settlement includes past damages for copyright infringement. Warner, a unit of Time Warner Inc. (TWX: Research, Estimates), parent of CNNfn, said it would share the money it receives from the settlement with its artists.
Sources familiar with the agreements said each label would receive between $15 million and $25 million to settle the suit. In addition, MP3.com would also pay a nominal fee each time a CD is registered - when an enthusiast adds a new disk to their virtual "locker" - and another small fee every time a user listens to a song over the Web.
MP3.com is expected to eventually settle with all five major recording companies, and pay a sum total of $100 million, in exchange for the right to use the record labels' songs on its My.MP3.com service.
Investors were encouraged by the settlement, and flocked back to MP3.com stock on Friday. MP3.com shares closed at 19-3/16, up 1-15/16, after touching a session high of 22-1/2. In April, the stock plummeted to an all time low of 6-1/2.
The pact comes about six weeks after a federal court ruled that San Diego-based MP3.com, via its My.MP3.com Internet service, unlawfully copied songs without permission. The accord comes just a month after MP3.com pulled the music in question off of its site.
The Recording Industry Association of America (RIAA), the trade group representing the labels, sued in January after the launch of My.MP3.com and its Instant Listening and Beam-it services.
In a statement on Friday, RIAA President and CEO Hilary Rosen said each related court ruling and subsequent settlements represents "a victory for the creative community and the legitimate marketplace."
"Music on the internet will flourish if everyone works together," she said.
A change of heart for both sides?
That veiled embrace of MP3.com represents a humbling of sorts for the recording industry, which has been very rigid in its outlook for distribution of songs over the Internet, amid concerns over security and control.
For more than a year, they have collectively investigated methods for selling music over the Web with limits on how one user can share tunes with another. In the meantime, use of programs like Napster and Gnutella, free software that allow people to acquire tunes at no cost and with virtually no repercussions, have mushroomed.
Such concerns are important but overhyped, experts said.
"(With this deal) the major labels have stopped whining about absolute control and embraced a new business model," Forrester's Scheirer said. "Secure delivery, the majors' magic bullet, is overrated; legitimately making music available is the strongest weapon in the fight against music theft."
On the other hand, MP3.com, which so far makes no money from the service - but is expected in time to charge a monthly fee -- has surrendered its raised-fist stance against "big music" and made a potentially lucrative deal. After all, My.MP3.com certainly draws many more eyeballs to its advertisers pitches with tunes by Prince than its can with the slide guitar strumming of unsigned MP3.com artist, Prince Igor of Burma.
"Our license agreement ... will put us in a better position to demonstrate how our robust technical infrastructure can enhance and stabilize the digital music space from a consumer-marketing, royalty-tracking and
copyright-protection perspective," said Robin Richards, MP3.com president.
MP3.com also avoids months of costly appeals and a potential court imposed penalty that could have topped $1 billion.
Still unknown is when the popular artists' music will again be available on the free service. "It will be ready when they relaunch," said a representative for BMG, referring to music from their more than 200 record labels, including Arista Records, RCA Records and Windham Hill.
MP3.com representatives did not return calls for comment on Friday.
Sources say that MP3.com is expected to eventually settle with all five major recording companies, and pay a sum total of $100 million, in exchange for the right to use the record labels' songs on its My.MP3.com service.
But MP3.com may still have to settle certain outstanding legal issues with a publishing companies, who control songwriters rights to songs.
Still outstanding is a lawsuit brought by The Harry Fox Agency Inc., which represents music publishers. The suit stems from allegations that MP3.com copied some 80,000 CDs illegally, Harry Fox Agency alleges, in order to build its vault of music ready to stream to registered users.
The company already has agreements with the two other significant music licensing houses: ASCAP, which was signed last year; and BMI, inked a few months ago.