Vivendi Universal to buy MP3.com for $372 m.

Derek Caney

NEW YORK: French media giant Vivendi Universal said on Sunday that it would
buy its one-time legal foe MP3.com Inc. for about $372
million in hopes of bolstering its online music business. MP3.com,
which operates a music download Web site and a series of other music services,
represents one possible springboard for the distribution of music over the
Internet for Vivendi Universal, which owns the world's largest record company,
Universal Music Group.

Major record companies have been looking for a way to replace the embattled
Napster song swapping service, with services of their own. Vivendi said MP3.com
could become an integral part of the duet music subscription service it
plans to launch this summer with Sony Music Entertainment.



The deal, which has been approved by MP3.com’s board and has
the support of the holders of more that 50 percent of the outstanding shares,
calls for MP3.com's holders to get $5 per share in cash
or stock. This represents a 66 per cent premium over the company's closing
Nasdaq price of $3.01 on Friday, but well below its high of $105 on the day of
its initial public offering in July 1999.



MP3.com, one of the best known Internet music sites,
offering free downloads of music files by largely unsigned and unknown bands,
had been battered in the past 16 months from a variety of factors including a
year-long legal battle with the five largest record labels in the world.

In January 2000, it began offering an "online music locker" called
My.MP3.com that allows users to store music digitally and later access via any
computer connected to the Internet. The service included a database of over
80,000 albums copied by MP3.com, which the record labels
and publishers argued violated copyright law.

In April 2000, a federal judge ruled against MP3.com. This ultimately
led to a shutdown of the service and an estimated payout of over $160 million to
the five major record labels - Universal, Sony, Bertelsmann AG's BMG
Entertainment, AOL Time Warner Inc.'s Warner Music Group, and EMI Group Plc and
music publishers.



Ironically Vivendi's Universal Music refused to settle with the online music
firm and was ultimately rewarded with a judgment that was believed to be more
than what the other labels received in their settlements. When the smoke cleared
from the legal battle, the company had licensing deals with all five labels and
the music publishers that allowed the company to relaunch My.MP3.com in
November.

But by that time, Napster, which allows Internet users to copy digital music
files for free from other people's computers, in most cases, without permission
from labels, artists and publishers, cast a pall over competing stand-alone
Internet music companies as far as Wall Street was concerned.

The labels have since won federal injunction against Napster that bars the
swapping of copyrighted music files. But music stocks have yet to recover.
Vivendi said it would not issue new common shares but will use treasury shares
for the share portion of the deal, which is still subject to regulatory
approvals.

(Additional reporting by Cyntia Barrera Diaz).

(C) Reuters Limited 2001.