Bertelsmann Buying Net Service Myplay

Media conglomerate Bertelsmann is buying Myplay Inc., a leading online song-storage service, marking the third time since April that a major record label has bought a top online music company.

Terms of the deal between Bertelsmann ECommerce Group and Myplay, which is expected to be announced today, were not available Tuesday. Company officials could not be reached for comment.

Two sources close to the deal said Bertelsmann will use Myplay’s storage lockers as a cornerstone for new online music-distribution services. The acquisition also hedges the multimillion-dollar bet that Bertelsmann placed last year on Napster Inc., the song-swapping service that is developing a fee-based version with Bertelsmann’s support.

The deal comes less than two weeks after Vivendi Universal, the world’s largest music conglomerate, announced a deal to buy MP3.com Inc., a pioneering online music distributor, for $372 million. The previous month, Vivendi’s Universal Music Group snapped up EMusic.com Inc., another groundbreaking online music company, for less than $23 million.

In each case, the target was struggling financially. MP3.com’s cash reserves had been drained by lawsuits brought by record companies and music publishers, including Universal Music Group, while EMusic and Myplay had been hindered by their inability to strike licensing deals with the major labels.

“This is the natural consolidation that we expected to happen and will continue to happen over the next two years,” said analyst P.J. McNealy of research and consulting firm Gartner Inc. “It’s definitely some of the labels who don’t have technology specialties in house going out and acquiring them.”

Noting the lawsuit brought by Universal Music Group against MP3.com, McNealy said, “It’ll be interesting to see whether or not there’s any scrutiny from the SEC [Securities and Exchange Commission].”

Myplay launched its service in 1999, enabling consumers who made digital copies of their CDs to upload them to free online lockers. It eventually attracted 6.5 million users who could play the songs in their lockers from any Internet-connected computer.

The company’s main problem was the amount of time it took to transfer a home’s music collection into a locker--20 minutes or more per song on the average dial-up modem. MP3.com spared users the trouble by making copies for them, but the labels and publishers sued, alleging copyright infringement, and a federal judge ruled in their favor.

The settlement reached by MP3.com required it to pay the labels millions of dollars in damages and a fee for each song included the locker service. Those fees, along with the royalties MP3.com agreed to pay the music publishers, quickly became the going rate for licenses.

Deterred by the high licensing fees, Myplay changed its focus away from consumers in March. Instead, it developed online music-distribution services for other companies.

A number of other online music companies have made the same switch as they struggled to strike licensing deals with the major labels. Some didn’t survive the transition, including Musicbank, which ran out of money after winning licenses for an online locker service from the major labels and music publishers.

The two sources said Myplay’s deal with Bertelsmann would help it obtain licenses from the major labels. Bertelsmann plans to integrate the locker service with its online music retailer, CDNow and the BMG Music Club.