PARIS -- Vivendi Universal SA agreed to acquire the music Web portal MP3.com Inc. for $372 million (423 million euros) in cash and stock in the latest example of the music majors' attempt to harness the Internet as a profitable distribution medium.
The move is likely to sharpen the battle lines between the two main online-music-distribution camps, as Vivendi, owner of Universal Music, plans on using MP3.com's technology to power Duet, its Internet-music-distribution alliance with Sony Corp.
Duet, which is slated to be operational this summer, competes against MusicNet, an online music-licensing vehicle set up by AOL Time Warner Inc., Bertelsmann AG and EMI Group PLC. MusicNet uses software from RealNetworks Inc.
Vivendi's acquisition of MP3.com is an unlikely turn of events considering that Universal Music and MP3 were locked in a brutal copyright battle as recently as six months ago. To end the lawsuit, MP3 agreed in November to pay Universal Music $53.4 million in damages and attorney fees.
In a phone interview Sunday, Vivendi's chief executive, Jean-Marie Messier, said he and MP3's chief executive and founder, Michael Robertson, began talking about a deal in January when Robertson came to Paris to promote the launch of MP3.com in Europe.
MP3 'acquried a legitimacy'
Messier, who has been one of the fiercest critics of online-music-swapping site Napster Inc., said that MP3 acquired a legitimacy that Napster still lacks by agreeing to settle lawsuits with all the music majors and tweaking its business model to address their copyright concerns.
However, MP3.com continues to carry some legal baggage. Last month, a federal jury in New York ordered the company to pay $292,000 in damages to Tee Vee Toons Inc., a small record label whose catalog includes recordings by such artists as Nine-Inch Nails and Snoop Dogg, for copyright infringement.
Messier acknowledged the possibility of more legal claims, but he said Vivendi "has taken the necessary measures to cover itself against any remaining legal risks." The Franco-American media giant will set aside financial provisions and buy traditional insurance policies to protect itself, he said.
At $5 a share, Vivendi is acquiring MP3.com on the cheap. At their peak in 1999, MP3.com shares traded for $105, giving the company a market capitalization of $7 billion. Once one of the brightest stars of the dot-com craze, MP3.com succumbed like many other young Internet companies to the technology crash. But it remains one of the best-known brands on the Internet with several tens of millions of registered users.
MP3.com's Web site features a service that lets people store and listen to their compact discs on any computer, using digital copies made by the company. MP3.com's other main business is to distribute music by unsigned musicians.
Messier said he informed Sony Chairman Nobuyuki Idei before going ahead with the acquisition. "When you have a partner, you tell him about such things in advance," he said, referring to the Duet alliance.
MP3.com's music storing and streaming technology is a "natural candidate to be used on the Duet platform," Messier said. However, MP3.com and Duet will be managed at "arm's length" from each other, he said.
Duet will remain open to using other technologies, while MP3.com will have nonexclusive rights to license Duet's song catalog, so as not to threaten other online distribution deals such as the one struck in March with Yahoo! Inc. MP3.com will continue to feature content from all record labels and from independent artists.