Liquid Audio, others see many online music mergers
By Sue Zeidler
LOS ANGELES, Nov 13 (Reuters) - The online music industry is ripe for consolidation as the Napster battle looms large and scares investors away from small companies trying to compete in the sector, executives at the Webnoize 2000 conference said on Monday.
``This conference shouldn't be called Webnoize 2000. It should be called M&A 2000,'' Liquid Audio Inc (NasdaqNM:LQID - news) chief executive officer Gerry Kearby told Reuters.
Liquid Audio itself was the subject of takeover speculation at the conference on Monday with the Redwood City, Calif.-based software company being the latest rumored acquisition target of German media giant Bertelsmann AG .
Both Kearby and Bertelsmann officials declined to comment.
The German media giant, which on Friday confirmed it was in talks to merge with music group EMI Group Plc (quote from Yahoo! UK & Ireland: EMI.L) and recently announced a strategic alliance with Napster Inc., has been rumored to be talking with several Internet companies.
Kearby of Liquid Audio noted his company has $135 million in cash and has not been seeking a sale, but added that ``everybody is talking to everybody'' and expects many smaller companies in the online music arena to combine.
``There's tighter financing for Internet music companies because of the Napster the MP3.com (NasdaqNM:MPPP - news) suits,'' he said.
In another high-level copyright legal battle, online music provider MP3.com Inc. has settled with four record labels by agreeing to pay them $20 million each plus other fees in exchange for licenses to post their music on its service.
Many online experts said this will most assuredly raise the licensing prices for small Internet companies who have been quietly and persistently trying to come up with legitimate solutions, ultimately squeezing them out of the game.
``I personally believe there'll be a lot of consolidation and acquisition of small companies in this space,'' said Steve Kukla, an executive for Escient Convergence Corp, who was at Webnoize. Escient makes products that merge entertainment devices with the Internet.
Many digital music insiders said they were disappointed in MP3.com, which had previously positioned itself as a rebel against the majors. And some Internet junkies have similarly called Napster a sell-out.
Bertelsmann has said it would drop its BMG Music unit's suit against Napster, which lets fans swap songs for free by trading MP3 files -- a compression format that converts music on CDs into computer files -- once Napster transforms into a secure, paid music service. Bertelsmann is providing about $20 to $50 million in financing to Napster.
BERTELSMANN ALONE IN SUPPORT OF NAPSTER
Bertelsmann invited all the other big music companies to join in, but so far all the labels like Seagram Co Ltd's (Toronto:VO.TO - news) Universal Music, Sony Corp.'s Sony Music, Time Warner's (NYSE:TWX - news) Warner Music Group and EMI have held firm in their resolve to get the wildly popular music service shut down with a copyright infringement lawsuit.
During a panel at Webnoize on Monday, Andreas Schmidt, president and chief executive officer of Bertelsmann eCommerce Group, said talks with the other big labels were going well.
``We're in active talks and they're going to continue. We're very optimistic,'' said Schmidt.
Since the Bertelsmann/Napster alliance was announced with much fanfare, doubts have circulated regarding how the two will actually pull off charging money for a previously free service or how Napster will track music files in a way to satisfy recording companies without changing the free-flowing feel of the service.
``We have a solid business model and the technology architecture will evolve,'' said Napster interim CEO Hank Barry.
Few details were revealed, but Schmidt, Barry and 19-year-old Napster founder Shawn Fanning reiterated they plan to retain the Napster experience for its users. The service has attracted nearly 40 million users.
``The most exciting thing now is where this technology is going to go,'' said Fanning.
``Three weeks ago, every label was out to kill Napster. Now, we're working toward a consensus,'' said Barry, who noted that Napster was actively recruiting a new CEO.
Many attendees at Webnoize said all the hoopla about Napster -- which so far has demonstrated no business or revenue-earning model to speak of -- has made it harder for smaller companies who have been trying to develop secure digital solutions for the music industry.
``There's not enough attention to details. It's just a lot of people having cool ideas,'' said Kukla.
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MP3.com Inc (NasdaqNM:MPPP - news)
Seagram Company Ltd (Toronto:VO.TO - news)
Time Warner Inc (NYSE:TWX - news)
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