BY KURT HANSON
The most important element of the deals between Warner Music Group, BMG, and MP3.com that were announced in the last couple of days may be this: MP3.com has agreed to pay the labels a price per play to stream songs to listeners from CDs that they already (at least allegedly) own.

First, though, here's some of yesterday's news coverage of the deal:

Media Central wrote: "Two major record labels may have gotten the best of all worlds in last week's settlement of their copyright infringement lawsuit with online music company MP3.com Inc. Not only did they stymie a rapidly growing threat to their long-term survival; they made a deal that allows them to exploit the latest means of Internet delivery and get paid for it...

"The settlement with...Warner Music Group and BMG Entertainment...cost the San Diego-based company between $15 million and $25 million for each label, according to executives familiar with the deal..."

And the Wall Street Journal revealed that those multi-million-dollar payments are merely for past sins. The licensing deals apparently also include a provision that MP3.com will pay the labels 1-1/2 cents each time a consumer stores one of their songs in My.MP3.com and 1/3 cent each time that consumer listens to it.

"We are building an entirely new model to make money from music, and the shareholders of the major music labels are going to benefit from that as well as the shareholders of MP3.com," MP3.com CEO Michael Robertson was quoted as saying.

More from Media Central: "The upfront cost of the settlement is the least of cash-rich MP3.com's worries, analysts said. 'The settlement money is not the problem," said investment bank Kaufman Brothers analyst Nitsan Hargil.

"'The bigger problem is that it requires MP3.com to pay the labels a royalty per unit," he added. 'I don't see how its current subscription revenue model or an advertising model can make up for that...'"

Read the full story from Media Central here and read the full Wall Street Journal article here (subscription required).

Screwed in the deal are firms like MyPlay.com that tried to do the same thing My.MP3.com was trying to do (i.e., give consumers free online storage and access to music they own), but legally. But it was MP3.com that got millions of dollars in publicity and the first licensing deal!

On the other hand, as Bob Bellin pointed out in RAIN on Friday, disk drives and other storage media are getting so cheap that there may be no long-term future for firms like MyPlay anyway.

This has always been my analogy of the My.MP3.com service (in which consumers could get unlimited listening privileges to a CD stored on MP3.com's server if they "proved" they owned the CD (via placing it in their CD-ROM drive for a one-time authorization)):

A guy named Michael opens a store called "Mike's We-Dub-4-U Cassette Shop."

Mike buys thousands of blank TDK audio cassettes and a handful of CDs from Tower Records and proceeds to dub dozens of copies of each CD onto the cassettes. Thus, he's soon able to open a store that's jam-packed with hundreds of copies of the latest hit albums -- Metallica and Backstreet Boys and Eminem -- on cassette...which he'll sell you for $3.00 each.

But isn't that illegal? No, Mike rationalizes, because he's going to ask you to show him your copy of the CD before he'll sell you a cassette! That way, Mike figures, it's exactly as if he's merely helping you make a cassette copy of a CD that you already own for your own personal use. That's perfectly legal; you have the right to do that. He's just speeding up the process as a service to you!

Of course, a bunch of kids could come in with one copy of the 'N Sync CD, share it, and buy lots of cassettes. ("Hey, Heather, let me borrow your CD for a minute, I want to go down to Mike's and buy a cassette!").

But in Mike's mind, it's okay.

The primary difference between the actual My.MP3.com and my analogy is that in my analogy Mike is selling a second-generation in a less-trendy form factor, whereas My.MP3.com is offering consumers a perfect copy in a cutting-edge form factor.

In this lawsuit, a judge disagreed with Mike's reasoning. Thus the recent settlements.



Now let's see if this settlement makes sense for record companies:

Instead of buying the new Counting Crows CD, a consumer can now borrow a copy for a moment from a friend and put the six best songs into their MyMP3.com account. And let's say they listen to each song nine times.

The record label would get $.09 for the "upload" and $.18 for the subsequent plays. That's $.27 -- which I'm pretty sure is a lot less than the record company's cut of a $18.97 CD.


This deal could theoretically set a lousy precedent for the radio industry -- or the Internet radio industry. It's a very steep royalty payment.

But this is different than radio. Why? Because consumers are picking the song they want to hear at the exact moment they want to hear it...

To be continued...

Dot-coms still lead L.A. Q1 radio revenues
From R&R Online: E-commerce grabbed almost 13% of the total market revenue, raking in $23.6 million -- a whopping 406% increase over Q1 '99. The Automotive category wasn't too far behind, claiming 11% of market revenue at $20.2 million. Television (8.4%), Communications (5.9%) and Restaurants (4.1%) rounded out the top five. Interestingly, the only category in the top 10 to show a decrease was Financial Services... L.A. radio brought in a total of $185.2 million in Q1 2000, a 33.5% rise. (Read R&R Online here.)

KKSF and KRBE become first Xenote stations
From Radio Business Report: "Bookmark your radio? Yes, it’s true—KKSF-FM San Francisco and KRBE-FM Houston became the first stations today (6/12) to offer listeners the Xenote “iTag,” a keychain-sized device that allows listeners to bookmark songs, ads and other information heard. Aimed at beating the problem of missed song backsells, listeners click the device and later plug it into their PCs’ serial port via a supplied wire jack. A list of previously clicked items are then available for access over the Internet. Rather than using a subcarrier, Xenote bookmarks the time clicked (and) that exact time is reconciled through the Xenote site with the station’s automation system... (Read RBR.com here.)

RAIN observation: Despite the release of this press release yesterday (timed to beat the story below?), there was no mention of the Xenote device anywhere on KKSF's website yesterday.

Sony to launch Xenote-like radio bookmark
From R&R Online: Sony's "eMarker" is a keychain attachment that lets users press a button to bookmark songs heard on the radio. Users then can plug the unit into their PCs and connect to the eMarker website, which matches the time the bookmark was created with the radio station's playlist. Sony reportedly plans to launch the eMarker in about 10 cities next month. (Read R&R Online here and/or visit Sony's God-awful website here, on which I believe you'll find no mention of this device, even in the "Press releases" section.)

SoundsBig moving to B2B model
From Radio Business Report: SoundsBig.com, offering 100+ webcasted formats, announced it is moving into B2B applications by offering branded, outsourced audio-streamed formats to other companies’ websites and portals. SoundsBig is delivering a suite of products and services, including the SoundBig player, back end broadcast services, programming and content. The model is free to its clients by leveraging audio ad and banner ad delivery (with Winstar). (Read RBR.com here.)

Steel cage death match
From Gavin.com: "Will there be a fight to the finish between traditional broadcasters and Internet-only radio webcasters?... It’s clear that this battle has already begun.... "Radio and the Internet can peacefully coexist because neither really threatens the other in the same area. They do things very differently" – Terrence Sweeney, Sirius Satellite Radio... Read the full essay in Gavin.com here.)

AMFM in deal with OpenRibbon.com
From Radio Ink: Over the next five years approximately 100 AMFM (soon to be Clear Channel) stations will run spots and promos for OpenRibbon.com in exchange for a piece of the OpenRibbon.com pie. The website...allows users to customize gifts, although as of today it nothing more than a website with an e-mail address link to it... The deal also calls for AMFM stations to receive any additional cash that may be spent on radio advertising for the life of the agreement. Read the full item in RadioInk.com here.

June 12-14	Streaming Media East 2000, New York City
June 14-17	R&R Convention 2000, Los Angeles
June 14-17	PROMAX & BDA, New Orleans
July 13-16	Upper Midwest Conclave, Minneapolis
August 3-5	Morning Show Bootcamp, New Orleans
September 20-23	NAB Radio Show, San Francisco
October 5-7	Billboard/Airplay Monitor Seminar, New York
November 5-7	NAB European Radio Conference, Berlin
Nov. 28-Dec. 1	Radio Ink Internet Conference, Santa Clara, CA

xxx

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