MP3.COM LICENSING DEAL:
THE $100 MILLION QUESTION

Today, a spokesperson from BMG, one of the companies reportedly near closure with MP3.com, gave us the following circumspect statement: "We are currently in negotiations with several companies in this specific category. Beyond that, no further comment." A highly placed sourcewithin WMG was more forthcoming. "It could happen in two days or two weeks, but I expect it to be sooner rather than later," he said.

Here's the original June 6 story:

Warner Music Group and BMG have reportedly taken the lead in negotiating a precedent-setting, non-exclusive deal with MP3.com whereby MP3.com users will be able to stream licensed songs culled from the label groups' libraries via their My.MP3.com lockers. Highly placed sources said Sony is close behind the two vanguard music groups. Universal Music Group, however, reportedly remains intransigent. Speculation abounds that this is partly because UMG still regards MP3.com as a competitor for Internet marketshare.

There are two primary points to the MP3.com-label negotiations. First, there are past damages, which tally $75-$100 million. This sum will eventually be split in some predetermined way among those members of the Big Five that close a deal with MP3.com. Second is the licensing part of the pending deal, which calls for MP3.com to pony up approximately 1.5 cents per track stored in a locker at My.MP3.com, and roughly 1/3 of a cent each time a song is streamed by any My.MP3.com user. In addition, a proposed "Most Favored Nation" clause would adjust compensation upward for all parties to match the highest negotiated rate.

When completed, the non-exclusive licensing deal will likely serve as the music industry standard for similar digital-distribution agreements between traditional and online parties.

Although the RIAA, which originally sued MP3.com on behalf of the labels, has dropped out of the negotiation process, counsel for the majors continue to jockey for separate licensing agreements with the online distributor.

On Monday (6/5), Judge Jed Rakoff, who oversaw the RIAA-MP3.com litigation, declined MP3.com's request for an appeal. "Copyright infringement was clear and couldn't be cloaked in their Internet strategy," the judge said. Sources at the RIAA say that the judge seemed to be hell-bent on rewarding major damages for the company's past indiscretions.

Current negotiations between MP3.com and the majors revolve around a standard for streaming songs from the My.MP3.com site, not for downloading. The majors all have some plan in place for vending downloads.

The proposed deal, said to be on the verge of being signed, leaves a load of questions still unanswered. If MP3.com is now paying for its content, will the business model of My.MP3.com change and will the company pass these expenditures on to its customers? As the noose tightens around copyright infringement, will music netcos like MyPlay, Scour, Napster, and others be forced to follow MP3.com's lead and negotiate deals with the majors? Are MP3.com's monetary deal points satisfactory to the other potential players? Does the same licensing fee apply to all the participants? Since this is being treated as neither radio nor product, how will publishers be compensated? What portion of the licensing fee does the artist see? Will the artist ever see any of the cash?

Short of a subscription model, questions remain as to how MP3.com can "monetize" this costly endeavor. Even so, the publicity resulting from an accord will almost certainly drive up the dot-com's stock—and Michael Robertson and compatriots have demonstrated such technological ingenuity that the netco's future looks bright in any case.

Even so, many insiders believe that had MP3.com approached the majors prior to the rollout of My.MP3.com, the company might have paid as little as 20 cents on the dollar—in other words, paid just out of its wallet, and not out of its hide as well.

A Warner Music spokesman said the deal is not done, while BMG declined to comment and MP3.com could not be reached for comment.

Story by Marc Pollack & Simon Glickman