MPPP to pay "PER UNIT". . . .Precisely as I predicted last week. . .congratulations those that went short MPPP on my sell call. . . . they are toast . . . . . .
Message 13855597
From 2 months ago: Message 13519670
Major record labels seen successful in MP3.com deal
By Derek Caney
NEW YORK, (Reuters) - Two major record labels may have gotten the best of all worlds in last week's settlement of their copyright infringement lawsuit with online music company MP3.com Inc.
Not only did they stymie a rapidly growing threat to their long-term survival; they made a deal that allows them to exploit the latest means of Internet delivery and get paid for it, media industry experts said.
The settlement with Time Warner Inc.'s Warner Music Group and BMG Entertainment, the music unit of Bertelsmann AG cost the San Diego-based company between $15 million and $25 million for each label, according to executives familiar with the deal.
That cost is set to climb as it is still in negotiations with the other three major labels -- Sony Music Entertainment Seagram Co.'s Universal Music Group, and EMI Group Plc
MP3.com President Robin Richards says the deal is going to take a toll on its earnings going forward, while declining to be specific.
The upfront cost of the settlement is the least of cash-rich MP3.com's worries, analysts said.
``The settlement money is not the problem,'' said investment bank Kaufman Brothers analyst Nitsan Hargil. ``The bigger problem is that it requires MP3.com to pay the labels a royalty per unit,'' he added. ``I don't see how its current subscription revenue model or an advertising model can make up for that.
``The labels have managed to work out the ultimate deal,'' he added. ``They have a new source of revenue from one of the most popular online music sites. And they have control over the content.''
The question remains if MP3.com and the labels can ever go on to make beautiful music together.
MP3.com and the record industry have never been bosom buddies. When MP3.com was gearing up its much-anticipated initial public offering in July 1999, its chief executive Michael Robertson openly challenged the industry. ``The system is broken and we can fix it,'' Robertson told Fortune magazine in May 1999.
``Part of what annoyed the labels was the rhetoric they used when they went public,'' said David Goldberg, chief executive of Launch Media Inc. a Web site providing music news and downloads. ``They've stopped saying that. But I don't think it's going to make the labels jump up and down'' over doing many deals MP3.com.
One entertainment industry executive familiar with the labels' thinking said, ``I think it was important to set the bar pretty high.'' Asked if the labels were particularly aggressive with MP3.com, he said, ``For the first major deal that we've done in this area, it was important that the labels not appear too permissive.''
Asked to comment on its relationship with the labels, MP3.com's Richards said, ``We did the best we could. Our relationship with the labels has come a long way.''
Still, some analysts viewed this as a landmark deal, one of the major labels' first with the new Internet-based means of distribution.
``This settlement represents the first tangible online service that the labels are backing,'' said Lise Buyer, an Internet analyst with Credit Suisse First Boston. ``The labels have made other investments with other companies at different stages of development but MP3.com is far and away the leader in this space.''
CSFB was the lead underwriter in MP3.com's initial public offering last year.
But significance aside, the deal would never have happened without the two sides fighting it out in court.
``The labels didn't proactively decide to cut a deal with MP3.com,'' said Goldberg. ``They didn't say 'let's form a better relationship with technology companies.' It was more like, 'we won in court and we're going to get paid a lot of cash.'
``There's still going to be a lot of label resistance to working with MP3.com,'' Goldberg said. ``There are many companies that have worked long and hard to get licenses through legal channels. For the labels to do a lot of business with MP3.com sends the wrong message.''
One such Web company is recent startup myplay Inc., which competes directly with the My.MP3.com service and is currently in licensing talks with the labels. The company's founder David Pakman fumes that in MP3.com's case crime did pay.
``Usually, if a criminal commits a crime, they go to jail,'' Pakman said. ``In this case, MP3.com committed a crime and not only do they get to stay in business but they continue to operate the service under a license.
``The message seems to be if you equip your company with enough cash, you can attract more attention by doing something illegal,'' he said. |
