San Diego Business Journal Agreement Doesn't End Copyright Suit

MP3.com, Inc.'s multimillion-dollar "landmark" agreement with music publishers is being described as a significant step for the Internet music distributor, but not one that will immediately solve its legal problems.

The San Diego-based company announced last week a potential licensing deal that would send one-fourth of a penny to music publishers every time the company streams a song via the Internet to a customer.

The three-year deal, which could cost MP3.com up to $30 million, drew differing opinions from a pair of company watchers.

"I think it's a significant step forward," said Phil Leigh, vice president for equity research at Raymond James & Associates, Inc. in St. Petersburg, Fla.

But it does not solve what Malcolm Maclachlan, a media E-commerce analyst with IDC in Mountain View, called the company's "main worry" , the copyright infringement suit brought against it by Universal Music Group.

A federal judge in New York ruled Sept. 6 that MP3.com willfully infringed Universal's copyrights with the use of its now deactivated MyMP3.com Internet listening service. The penalty phase of the trial continues next month.

Company officials said the newly announced licensing deal could help settle a separate lawsuit involving music publishers.

MP3.com stock traded at $2.75 per share on Oct. 17, the day before the deal was announced. By Oct. 19, the stock closed at $4.63 per share, up 68 percent in two days.

MP3.com's preliminary licensing pact is with the National Music Publishers' Association, Inc. and its licensing subsidiary, The Harry Fox Agency, Inc.

Approval Pending

If approved by individual music publisher principals, the San Diego company announced, the deal will permit MP3.com to use more than a million musical compositions on its My.MP3.com listening service.

The $30 million sum would pay for past and future uses of music on My.MP3.com. Along with the quarter-cent charge, the prospective license calls for a one-time fee per track added to the service.

Officials at the San Diego company say the My.MP3.com service allows consumers to listen to music from CDs they already own or which they purchase from retailers affiliated with the company.

Five major recording labels sued MP3.com over the use of their content on the My.MP3.com service. MP3.com voluntarily disabled the major label content from the service in May while in negotiations to settle the lawsuit. The service has yet to be reactivated.

Four labels settled with the company. Universal continues to pursue the litigation.

'In A Bind'

IDC's Maclachlan said he felt MP3.com is "in a bind" in that it has to pay both performance and composition rights. Radio stations, by contrast, pay performance rights but do not have to pay record companies, he said.

Leigh called the licensing agreement with the music publishers a "landmark development."

"No other company has a licensing agreement like this," he said, noting MP3.com is the first to have the right to stream music from a locker service with the blessings of the publisher.

With the potential licensing deal, MP3.com announced terms for settling a copyright infringement action filed against it by MPL Communications, Inc. and Peer International Corp.

Putting the licensing deal into place, with the OK of music publisher-principals, is one condition for settling the matter, MP3.com announced.

In unrelated news, the company announced third-quarter earnings following the market's close Oct. 19. It reported a loss of $6.1 million, or 9 cents per share. Net revenues for the third quarter, ended Sept. 30, were $20.5 million.