Vivendi Adds to Its Internet Strategy With MP3.com

Vivendi Universal's (V Quote - Cramer on V - Stock Picks) agreement to buy online music company MP3.com (MPPP Quote - Cramer on MPPP - Stock Picks) is one more example of how the entrenched music industry is battling to maintain its supremacy on the Internet. It also shows how dot-com pretenders are failing to live up to their vows to upend the music business' power structure.

Vivendi's Universal Music Group, which is behind the $372 million deal, is, of course, the same one that, along with the world's four other largest music companies, piled on MP3.com with copyright lawsuits over the company's My.MP3 online jukebox service. The same UMG, that, back when it was owned by Seagram, didn't settle out of court with MP3.com but squeezed a $53.4 million judgment out of the dot-com in court last November.

And Edgar Bronfman Jr., the Vivendi Universal executive vice chairman who ran Seagram, is the same guy who a year ago, according to the Hollywood Reporter, called MyMP3.com a ringleader "of theft, of piracy, of the illegal and willful appropriation of someone else's property."

If that's how people establish a friendship in the music business, one hesitates to think of how they treat their enemies.

Of course, MP3.com has been undergoing a little attitude adjustment itself, thanks in part to the $170 million cost of the company's copyright misadventures. Back in the giddy, pre-IPO days of 1999, MP3.com CEO Michael Robertson was telling attendees at an investment conference that MP3.com would put artists directly in touch with their audiences, cut out the middlemen at the record labels and loosen what he called the Big Five's "stranglehold" on distribution.

In a Sunday press release, Robertson said, "We believe consumers will see the full promise of digital music come to fruition." Exactly what that promise has become remains unclear.

MP3.com shareholders could have done worse. The $5-a-share offer, which the companies say has been approved by holders of more than 50% of MP3.com's shares, represents a 66% premium over the dot-com's Friday close of $3.01. The company's shares, which closed at $63.31 on the day it went public in July 1999, have been trading below five dollars uninterruptedly since Feb. 12. MP3.com shareholders will have the choice of getting paid in Vivendi Universal stock -- that is, its American depositary receipts -- in cash, or in a combination of the two, though the deal, in aggregate, will be half cash and half stock. Any Vivendi Universal stock received will be tax-free, say the companies.

For Vivendi Universal, MP3.com is just one more resource for staying on top of the music business as it trickles onto the Internet. MP3.com will continue to function as an independent music distributor for all record labels and independents, the companies say. In addition to MP3.com's brand name, the company is a candidate to provide "state-of-the-art technical contributions" for Duet, the online music partnership that UMG has with Sony's(SNE Quote - Cramer on SNE - Stock Picks) Sony Music Entertainment, Vivendi Universal says. Duet is slated to launch on Yahoo! (YHOO Quote - Cramer on YHOO - Stock Picks) later this year.

"We believe this is one further step indicating that the major record labels are getting incrementally more serious about online music distribution," Raymond James analyst Phil Leigh wrote in a note.

On Friday, UMG announced it had received nearly 74% of the shares of online music company EMusic.com (EMUS Quote - Cramer on EMUS - Stock Picks) in a tender offer that valued the company at $26.4 million.