Vivendi to Buy MP3 for $372 Million

Three years after emerging as a cyber rebel ready to upend the record industry’s corporate establishment, online music firm MP3.com Inc. said Sunday it has agreed to be purchased by Vivendi Universal, the world’s largest music conglomerate, for $372 million.

The deal would end the independent existence of the San Diego-based start-up, which has been handicapped by a series of lawsuits filed against it by record labels--including Vivendi’s Universal Music Group, which won a $53-million judgment.

The move underscores how record conglomerates, which have botched numerous attempts to launch successful online music divisions on their own, are reaching outside for Internet expertise and technology from companies they once derided as pirates.

With MP3.com, Vivendi buys one of the few online music companies with the technological infrastructure necessary to run a large-scale streaming service.

Vivendi said MP3.com is “a candidate” to provide technical contributions for Duet, a planned online subscription service being launched as a joint venture with Sony Music. Vivendi said the company’s technology also could be used to distribute films and other content, improve database management and launch direct-marketing initiatives.

While the controversial Internet music company has been criticized for subsisting largely on investment capital and operating without a conventional business model, it is one of the few online music Web sites to draw a significant audience.

The company, which has been burning through $60 million a quarter, has one of the most popular music sites on the Web, with visitors viewing its pages an estimated 165 million times in March, up 16% from a year earlier. The fact that it has an existing site with proven technology gives it an edge over several other online ventures undertaken by the five major record conglomerates.

“Unlike all the other initiatives you see out there, we’re delivering music today,” said MP3.com Chief Executive Michael Robertson, who will become a special advisor to Vivendi Universal Chairman Jean-Marie Messier.

But according to regulatory filings, 92% of the company’s $22 million in revenue last quarter was generated by advertising, not from users buying subscriptions to its music-locker service. The service allows users to upload their own CDs and listen to them from any computer on the Internet.

Because of the litigation, the music available through MP3.com was largely limited to unknown artists. And consumers have been unenthusiastic about the labels’ own attempts to release encrypted downloadable songs, which cost about the same as traditional retail songs but can’t be freely copied or moved to portable devices.

MP3.com, which created a database of tens of thousands of albums to feed its online locker service, already paid more than $100 million in settlements and licensing fees to resolve copyright litigation, and there has been no end in sight to the courtroom battles. Less than two weeks ago a group of songwriters filed a $40.5-million case against the company, saying its database of CDs is unauthorized.

The settlements MP3.com reached last year with the major record companies provided it with licenses to stream songs from the labels’ catalogs through its locker service. But a senior Vivendi executive said the company did not believe those licenses would allow Duet, the Vivendi/Sony subscription service, to download songs from the three record conglomerates who aren’t partners--AOL Time Warner, EMI Group and Bertelsmann.

A Vivendi spokeswoman said “adequate measures have been taken” to prevent the conglomerate from being drawn into MP3.com’s legal troubles, but declined to elaborate.