MP3.com shares explode

Chief executive quells litigation anxiety, then sees stocks rise
Written by Larry Barrett, Contributor

MP3.com shares rose from the ashes on Thursday, rallying up 15 5/8, or 95 percent, to 32 in late trading after chief executive Michael Robertson told analysts that the company has little to fear from a pending a lawsuit with the Record Industry Association of America (RIAA).

Shares in the company have been in a free fall since January, when the RIAA filed a lawsuit against it over its new product, called My.MP3.com, which was made available on 12 January. In turn, MP3.com filed a suit against the RIAA on 8 February for allegedly unfair business practises.

The My.MP3.com site uses MP3.com's proprietary technology Beam-it, which allows a consumer to place a music CD in a CD-ROM drive in a PC; after the user hits a button, the Beam-it technology "reads the DNA" of the CD into a consumer's PC and automatically "turns that CD on", Robertson told analysts at the Robertson Stephens Tech 2000 conference in San Francisco.

MP3.com said the CD isn't actually uploaded because it has a database of 80,000 CDs. The company allows access to the database only if consumers can prove they own the CD. But that hasn't stopped the music industry from coming after MP3.com.

Not surprisingly, investors have bailed out of the stock in quick fashion, worried that MP3.com might have to pay hefty damages to record companies if they lose the lawsuit. "They're going to have a big challenge to prove that we're hurting CD sales," Robertson said.

If MP3.com emerges victorious, it would clear the way for a subscription-based service. The company would then charge consumers a small fee to access all their CDs. Phil Leigh, an analyst at Raymond James & Associates, said regardless of the pending litigation, MP3.com's sales wouldn't be affected this year. "If the (next) hearing comes out in our favour, $270bn (£167) in music comes available," Robertson said.

Even if MP3.com loses the lawsuit, the company could still implement its MSP service in a mutant form with slower conventional uploading, a process the RIAA seems willing to accept. "While no-one can know the outcome of the lawsuit, Robertson's comment illustrates the dimensions of the content that My.MP3.com users could access on their personal Web page," James wrote in research note.

In its latest quarter, MP3.com posted a smaller than expected loss, dropping $10.6m (£6.5m), or 17 cents (10p) a share, on sales of $15.3m (£9.4m).

All five analysts tracking the stock maintain either a "buy" or "strong buy" recommendation. First Call consensus expects it to lose 13 cents (8p) a share in its second quarter and 40 cents (24p) a share in the fiscal year.

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