Listen's Scour deal still faces scrub test

Listen.com, which has agreed to buy key assets of controversial file-swapping company Scour, has a few shoals to navigate before it can find passage to the peer-to-peer world.

Meta Group says that recent deals, such as Bertelsmann's investment in Napster and Listen.com's offer to buy Scour's assets, indicate that the music industry and Web distributors are waking up and facing the Internet music. see commentary

Like Bertelsmann, which this week partnered with Napster, Listen.com will have significant technical and business questions to answer in merging its core media service with a software business brought down by the concerns of heavyweight copyright holders.

The company, which provides simple Web links and editorial recommendations for consumers looking for music on the Internet, is viewed as highly respectful of intellectual property rights. All Big Five record labels--Bertelsmann's BMG Entertainment, Warner Music Group, Seagram's Universal Music Group, Sony Music Entertainment and EMI Recorded Music--own stakes in Listen.com's online music directory service.

But these same companies are largely responsible for dragging Scour into bankruptcy through a lawsuit this summer. Analysts say they're likely to keep close watch on any new manifestation of the file-swapping company's technology.

"I think Listen.com's biggest challenge is going to be reconciling their relationship with the labels with the bad (reputation) of the technology that they are acquiring," Jupiter Media Metrix senior analyst Aram Sinnreich said.

Scour's Exchange software lets people trade videos, images and other files as well as MP3s for free, much like Napster. The record labels will certainly watch carefully to make sure that no such unrestricted service arises in its place.

Listen.com chief executive Rob Reid said in an interview that he does not intend to offer the same kind of unregulated file-swapping service boosted by Napster and the original Scour. That could help mollify Listen.com's major-label investors.

"That would seem like a dangerous path for us," Reid said.

Still, Sinnreich said that mating the "bad boy" of the industry with the "goody two-shoes" will likely be a difficult task at best. The company will face the same problems that Scour and Napster have in balancing consumers' demands with the interests of investors and the music industry, and it risks being thrown off course.

"I think it's going to be pretty difficult for Listen.com to integrate Scour's technology without upsetting the labels, investors and partners," Sinnreich said. "There's nothing being solved here except highlighting the fundamental tension between pleasing rights holders and pleasing customers."

On the technical and business side, Listen.com must decide exactly what it wants to do with Scour's Web search and peer-to-peer technologies.

The two companies have maintained different technical portfolios, although each has ostensibly served as a gateway to music content. Listen.com has built its business and technology on creating a directory and taxonomy of music and on licensing this to other customers. Scour is built around a Web search engine and a peer-to-peer software program along the same lines as Napster's service.

All of this is contingent on the sale actually going through. The deal has yet to be accepted by the bankruptcy court, and Scour creditors and other companies could potentially step in with higher bids of their own.

If the offer is approved, analysts suggest that Listen.com could mimic the arrangement being set up between Napster and Bertelsmann, whereby people will pay monthly subscription fees for the rights to tap into and download pools of MP3 files.

Reid said he is looking closely at using the peer-to-peer technology to help distribute music offered by Listen.com's long list of partners but has not made any decisions yet.

"This is a big, big business puzzle, but there is a lot to be gained for all parties," Reid said.