October 19, 2001 1:25 PM PDT

MP3.com splits into two

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MP3.com said Friday that it will undergo another metamorphosis, splitting into two entities as it moves to provide technology support for parent company Vivendi Universal.

The San Diego, Calif.-based company said its MP3.com Web site will still give customers a place to listen to music. A new division, dubbed MP3 Technologies, will provide the technology for MP3.com and other Web sites, including the forthcoming Pressplay online subscription service.

MP3.com added that it has named Greg Kostello president of the new division. He was formerly the executive vice president of technology at MP3.com; before that, he served as a Netscape Communications executive.

"We've always seen ourselves as really a technology company," Kostello said. "Now, as part of the larger Vivendi Universal family, we have new customers; so it makes sense to have a separate division."

The move underscores Vivendi Universal's latest effort to push online music into a new era consisting of subscription services. When the French media giant completed its acquisition of MP3.com two months ago in a deal worth $372 million, Vivendi Universal said it planned to use the online music company's technology to digitally distribute various content.

Through a joint venture with Sony, Vivendi Universal has been gearing up to launch Pressplay, an online subscription service that will be carried on Yahoo and the Microsoft Network. A rival service, known as MusicNet, has the backing of RealNetworks, AOL Time Warner, Bertelsmann and EMI Group.

Vivendi Universal has also made aggressive moves to restructure MP3.com. In August, the media giant tapped Robin Richards as chairman and chief executive of the online music company, replacing founder Michael Robertson. The former CEO had been vocally skeptical of online music subscriptions, questioning whether customers would actually warm up to paying for songs that once were free.

Friday's announcement of plans to divide the company did not surprise some analysts.

Phil Benyola, digital media research analyst for investment company Raymond James, said the restructuring simply deepens an implicit division in the company between its technology and consumer businesses. He said it is likely aimed at preserving MP3.com as a separate brand as its parent launches Pressplay.

"MP3 might have interest in being a MusicNet distributor and a Pressplay distributor, so it just might help them have some independence on the branding front," Benyola said.


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