Vivendi Universal to Buy MP3.com

UPDATE As pop songstress Alanis Morissette once said, isn't it ironic?

In a stunning move for the digital music community, media conglomerate Vivendi Universal said Sunday that it has agreed to pay $372 million for MP3.com, the pioneering music Web site that its own music unit had previously sued for copyright infringement.

The deal would give the Paris-based conglomerate one of the Web's best-known music destinations and boost its online reach to more than 40 million users - the largest online audience of any of the major music groups. Additionally, it would give Vivendi access to patented technology for distributing music online, which it says could help power Duet, the music-subscription venture it is developing with Sony.

Such a relationship would certainly boost Duet's prospects. MusicNet, a competing subscription platform owned by the other three major labels - BMG, Warner and EMI - along with streaming technology giant RealNetworks, gave its first public preview of the service at a congressional hearing last week. On the other hand, Duet, which Vivendi says will make its debut by summer, has yet to show it has the necessary technology in place.

"The MP3.com strategic acquisition is a big step forward for Vivendi Universal's priority to develop and implement an aggressive, legitimate and attractive offering of our content to consumers," Vivendi Universal chief Jean-Marie Messier said in a prepared statement. The release cited MP3.com's technology, including patented technology for music distribution, as well as comprehensive data management and tracking systems, as a driving reason for the acquisition.

Vivendi's $372 million offer - $5 a share - represents a 66 percent premium over MP3.com's Friday close of $3.01. At its height, MP3.com stock traded for $105 a share. The cash-and-stock deal is being structured as a "reorganization that will be tax-free to MP3.com shareholders to the extent they receive Vivendi Universal shares," according to a company statement.

Vivendi's decision to snap up MP3.com is the latest sign that the major recording labels will do all in their power to wrest control over the direction of online music away from renegade upstarts. With its launch in 1997, MP3.com promised to revolutionize the music industry by giving unsigned artists the tools to distribute their music over the Web, and giving consumers more choice in where and how to listen to music. For example, the company's innovative My.MP3.com service enabled users to hear digital streams of CDs they own from any Internet-connected PC. The service raised the hackles of the record labels, because they felt it would threaten CD sales. Now that very service will be controlled by the world's biggest label.

The My.MP3.com service was the center of a copyright infringement lawsuit launched by five largest recording groups against the San Diego-based company. Four of the five quickly settled for undisclosed amounts with MP3.com, but Universal Music Group held out. The contentious legal battle ended when MP3.com agreed to pay the recording label, which is owned by Vivendi Universal, $53.4 million in damages for copyright infringement.

The deal that ended the lawsuit also gave Universal, the world’s largest music group, warrants to purchase equity in MP3.com, though that apparently wasn’t enough for the company.

Perhaps even more significantly, since MP3.com already has a licensing agreement with Harry Fox - the agency that represents a vast majority of music publishers - the deal could put Duet ahead in obtaining publishing licenses. Securing rights from publishers, who own a separate copyright for the songs underlying any piece of recorded music, is essential to any legitimate music-subscription offering. In fact, a group of music publishers sued Universal late last year, charging that the label hadn't obtained the proper licenses before it launched a beta test of an on-demand streaming service through its Farmclub.com Web site. And last month, MP3.com was forced to pull about 1,700 Sony albums from its library because of murky publishing-rights issues.

"With MP3.com's proven technologies and team, we'll have