HITS Daily Double
"MP3.com will be a great asset to Vivendi Universal in meeting our goal of becoming the leading online Music Service Provider."
——VU honcho
Jean-Marie Messier


$372 Million Deal Will Also Require Netco
To Develop Digital Foie Gras
Talk about making some cheese.

Less than a year after it was nearly annihilated by Universal Music Group and other major-label litigation, net-music giant MP3.com announced on 5/20 that it will be purchased by UMG parent Vivendi Universal in a deal valued at $372 million.

Under terms of the deal, which was unanimously approved by MP3.com’s Board of Directors, shares of MP3.com can be exchanged for $5 apiece cash, an equivalent amount in VU shares or a combination thereof.

Once finalized, MP3.com will become the largest jewel in VU’s digital crown, which now includes such acquisitions as Emusic.com (see story, 4/9) and GetMusic, which will incorporate UMG multimedia property Farmclub.com (see, 4/25).

MP3.com will contribute technology to the VU-Sony digital-distribution service Duet (which will be offered via leading portal Yahoo! And other sites), the companies say, adding that the netco’s numerous revenue streams (which include B2B services, sponsorships, online marketing for artists, licensing of technology and much more) will supplement Vivendi Universal’s bottom line.

But MP3.com technology will also be instrumental to other Vivendi media properties, including its film and gaming divisions. Some observers, in fact, believe that these aspects were key to the deal, which was closed by Vivendi corporate and not the company’s music division.

"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," emoted VU chieftain Jean-Marie Messier. "MP3.com will be a great asset to Vivendi Universal in meeting our goal of becoming the leading online Music Service Provider."

Messier added, "With MP3.com's proven technologies and team, we'll have the tools and talents to aid the success of this and other digital-content distribution ventures. Their engineering and digital expertise will be a tremendous advantage for Vivendi Universal, especially in the digital distribution of all Vivendi Universal content and the creation of common technology platforms."

"This groundbreaking merger is a defining moment in the digital-music era," declared the netco’s Chairman/CEO, Michael Robertson. "It brings together industry-leading technology, brands, distribution and content. We will continue with our current MP3.com pursuits, but also work with our new partners to innovate subscription systems and music offerings that reach a global audience across many devices. We believe consumers will see the full promise of digital music come to fruition and that transaction is in the best interest of our shareholders."

MP3.com will continue to operate as a standalone business, even as it is brought into VU’s existing digital stable. Robertson is slated to act as a special advisor to Messier on digital distribution issues.

The fate of President Robin Richards and other execs has yet to be articulated, but sources say Richards will remain in the capacity of consultant for an as-yet-undefined term.

It remains unclear what further difficulties may arise from the online company's disputed My.MP3.com streaming service—the source of litigation from all the major labels as well as publishers, indie labels, individual artists and others. Ironically, of course, Universal was the last holdout in settlement talks with the netco, ultimately agreeing to take $53.4 million from MP3.com in November (see story, 11/14), as compared the reported $20 million each the four other major-label groups settled for. MP3.com also paid approximately $30 million in damages to music publishing organizations. Insiders say VU has taken out an insurance policy to protect itself from legal fallout from infringement suits still pending against MP3.com, including those filed by heavyweight independents Zomba/Jive and TVT.

As part of its deal with UMG, MP3.com was given the right to include Universal’s music in its streaming service; UMG, in turn, obtained a minority stake in the netco along with the court-stipulated payment.

The netco says all of its current offerings, including marketing, promotion and online artist services (notably its "Payback for Playback" initiative), will remain in effect.

MP3.com artists concerned that the involvement of VU might compromise their thriving sales of eight CDs a month received a reassuring e-mail from the company on 5/21, crediting "the talent, passion and dedication of artists such as yourself that has helped fuel our site over the past three years." Guess how much of the $372 mil will be handed over as a token of the company’s gratitude? If you said "none," download yourself a stuffed elephant.

Despite insistences that the netco will continue to function as an unfettered outlet for independent artists, rumbling on MP3.com message boards and on the tech-geek e-mail forum the pho list suggests some public skepticism about this point.

Speaking of pho, hitsdailydouble.com asked list co-founder and music-tech guru Jim Griffin for his comments on the transaction.

"In 1971, Dr. Elisabeth Kubler-Ross enumerated the five stages of death: Denial, Anger, Bargaining, Depression, Acceptance. This puts Vivendi somewhere near Step Three. Congratulations!" Griffin quipped. "On a more serious note, if by some quirk of fate Universal spares MP3.com the kind of Borg-like assimilation they've practiced in the past, this could prove a bargain. If it's an asset acquisition, it is overpriced. The key is ongoing involvement by MP3.com's management team, which has been short on strategy but long on execution. If Michael Robertson does something, it will work. If it hadn't, it would've cost him much less in court judgments."

Here’s some more thrilling stock info for you fetishists, taken from a joint statement issued by the two firms: "The transaction has been structured as a reorganization that will be tax-free to MP3.com shareholders to the extent they receive Vivendi Universal shares. Consistent with its previous statements, Vivendi Universal will not issue new common shares in this transaction, but will use treasury shares for the share portion of the aggregate transaction consideration."

It’s still unclear how Vivendi’s latest, biggest online play will affect the increasingly heated subscription-service sweepstakes, which currently find Duet pitted against AOLTW, BMG, EMI and RealNetworksMusicNet as well as the Bertelsmann-backed, for-pay Napster service and any other online services that license the music. Meanwhile, publishers remain an obstacle to digital-delivery licensing.

Insiders speculate that while Napster could well evaporate, the two large entities will coexist and license music to one another.

Only one thing is certain: Jerry Lewis will have San Diego at his feet once again.

--Simon Glickman and Marc Pollack