Saturday, June 10, 2000

Online music company settles copyright case

Federal judge said violated labels' copyrights

By Susan Decker
Bloomberg News

        SAN DIEGO — Inc., operator of an online music library, said Friday it settled copyright-infringement claims by Time Warner Inc.'s Warner Music Group and Bertelsmann AG.

        Financial terms weren't disclosed. agreed to license recordings from Warner and Bertelsmann's BMG Entertainment for its service, which lets computer users connect to a collection of 80,000 CDs through the Web. EMI Group Plc, Seagram Co.'s Universal Music and Sony Corp. also have sued

        Consumers are increasingly turning to the Internet for music. According to two studies released by, 36 percent of adult Internet users and 41 percent of teens and young adult users have downloaded music from the Web in MP3 or similar formats. Without creating a legal way for con sumers to find that music, piracy will continue to grow unabated, analysts have said.

        “It's obviously in the best interest for the major record labels to play ball here, so we would expect the rest of the labels to fall in line,” said research associate Philip Benyola of Raymond James & Associates. “They need a way to digitally distribute music in a legitimate alternative to some of the bootlegging software.”

        Warner Music said it will share damages and licensing fees paid by with its artists. Officials from the three companies weren't available to comment on the settlement. lets customers download music stored in its Internet library — provided the subscribers can show they already own a particular CD by putting it into a computer and allowing to scan it. also distributes music by independent artists.

        A federal judge, calling's arguments for distributing music online “indefensible,” ruled in April that was infringing on the music companies' copyrights. The decision sent's shares falling 40 percent in a single day.

        “The settlements are good news on the surface,” said Kris Tuttle, a Wit SoundView analyst who has a “buy” rating on “What is less clear is how will the nature of the settlements affect the viability of some of the businesses they want to be in. How will it affect their ability to make money?”

        Benyola said has about $360 million in cash, so it should be able to pay damages and other fees without a problem. was expected to pay Warner Music between $15 million and $20 million to settle the claims, according to a report earlier this week by the Wall Street Journal. Reuters said was close to an agreement to pay $75 million to $100 million to the Recording Industry Association of America, the trade group that represents all the major labels.

        Warner Music Group labels include The Atlantic Group, Elektra Entertainment Group, Rhino Entertainment, London-Sire Records and Warner Bros. Records Inc.

        Closely held Bertelsmann's BMG owns more than 200 record labels in 54 countries, including Arista Records, RCA Records, Ariola and Windham Hill.


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