MP3.com settles copyright dispute with Warner, BMG

MP3.com today settled a copyright infringement lawsuit with Time Warner's Warner Music Group and Bertelsmann's BMG Entertainment, sending the online music site's stock up in morning trading.

Along with the settlements, Warner Music and BMG said they have entered into separate licensing agreements that will allow MP3.com to use their respective music libraries in its My.MP3.com service. The agreements today conclude weeks of settlement negotiations after a federal judge ruled in favor of the recording industry in its copyright infringement lawsuit against MP3.com.

Terms of the settlements and licensing agreements were not disclosed. However, the licensing terms per label could total about $11 million a year based on fees that record companies would charge on a per-play basis, according to one source familiar with the negotiations. Other reports have said the industry would split a total $75 million to $100 million in payments.

Shares of MP3.com rose $1.94, or just over 11 percent, to $19.19 in morning trading.

Today's settlements are the latest in an ongoing tug-of-war between the major record labels and scrappy tech start-ups trying to revolutionize music delivery. The "Big Five" record companies--Warner Music Group, BMG Entertainment, Universal Music Group, EMI and Sony Music--are tenuously trying to embrace the digital delivery of their coveted music libraries, but through terms that ensure copyright protection of their signed works.

While the music and technology industries are steadily finding common ground to work together, fears of copyright violation have sparked a number of high-profile battles. Recording artists such as Metallica and Dr. Dre are suing Napster in connection with the widespread piracy of their work. They have also fingered hundreds of thousands of people who have made the artists' works public online without consent.

Launched in January, My.MP3.com allowed people to listen to full CDs online through any computer with Web access. To do so, MP3.com bought tens of thousands of CDs, created a database of MP3-encoded downloads, and offered access to people who could prove they bought the CD by placing the disc in their computer.

But that arrangement incited the Recording Industry Association of America, the trade group representing the Big Five record labels, to take swift legal action against MP3.com, leading to today's out-of court settlements.

"The settlement agreement clearly affirms the right of copyright owners to be compensated for the use of their works on the Internet," Paul Vidich, Warner Music Group's executive vice president of business development, said in a statement.

MP3.com chief executive Michael Robertson added in a statement, "There is value for all Internet companies to work cooperatively with the record industry to build new business models together."

Today's agreements come a day after BMG licensed rights to its music library to MusicBank, a start-up online music storage service. MusicBank, which will launch in September, plans to strike licensing agreements with other major record labels and traditional CD retailers. Like My.MP3.com, MusicBank will allow users to access digital versions of their recently purchased CDs online.

Online music storage has garnered considerable attention not only from the music industry but among Net heavyweights as well.

As first reported by CNET News.com, Web portal Yahoo has been in negotiations to acquire Myplay, also an online music-storage service. Negotiations have since stumbled, however, partly because of contractual hurdles from a deal that Myplay struck with America Online in March, according to sources close to the talks.

Today's agreements could open the floodgates for other music start-ups to strike similar licensing deals with major record labels, according to Eric Scheirer, an analyst at Forrester Research.

"The next six months will be a land rush; anyone who wants to be a big player in 2001 had better get on their horse," Scheirer said.