UMG forming digital music alliance

Universal Music Group, a unit of Seagram, AT&T, Bertelsmann's BMG Entertainment unit, and Matsushita Electric Industrial are close to an alliance to develop an online music access system.

NEW YORK--Universal Music Group, a unit of Seagram, AT&T, Bertelsmann's BMG Entertainment unit, and Matsushita Electric Industrial are close to an alliance to develop a system that allows consumers to access music online, people familiar with the negotiations said.

The alliance will seek to deliver digital music over a variety of channels, including the Internet, one of the people said, adding that an agreement could be signed in weeks rather than months. MP3: Sound and fury Executives at BMG, AT&T, Universal, and Matsushita either could not be reached or declined to comment.

The talks were earlier reported by the Wall Street Journal Europe, which cited people close to the negotiations.

Music companies are scrambling to develop businesses either alone or with partners to distribute music online while preserving copyright and royalty protection. The record industry has been seeking to counter piracy on the Internet, where technology exists that allows people to download CD-quality digital music for free.

"The major record companies need to start lining up more aggressively with technology partners to develop a means to distribute their music," said Mark Hardie, an entertainment analyst at Forrester Research. "The music industry had their heads in the sand for a long time, but no more."

Seagram shares today rose 0.81 to 59.75, while AT&T rose 3.75, or 6.6 percent, to 60.69. In Japan, Matsushita shares closed up 45 yen, or 1.98 percent, at 2,315 yen ($19.17). Germany's Bertelsmann does not trade.

The structure of the venture has not yet been decided, one of the people familiar with the project said.

"You've got music content, technological expertise, and telecommunications," said Angela Maxwell, an analyst with Sutherlands. "They've assembled the correct business model to actually make Internet music delivery a reality and hopefully a profitable reality."

AT&T said earlier this week that it "wants to be a major player" in selling music online and that early involvement in areas such as the music-delivery business could help justify its investment in cable systems, the Journal reported.

Seagram already has a history with Japan-based Matsushita, which sold 80 percent of Universal parent MCA to Seagram in 1995 for $5.7 billion. Seagram changed the unit's name to Universal Studios the following year.

Matsushita, the No. 1 consumer electronics maker in the world with the Panasonic brand and others, currently owns about 8 percent of Universal Studios, with Seagram owning the rest.

Matsushita gets the bulk of its revenue from its communications and information equipment sector, with products ranging from personal computers to CD-ROM and DVD-ROM drives.

Last month, Seagram and Bertelsmann announced they were forming an online music alliance to create Web sites to promote and sell music.

The sites will allow online users to access information and buy compact discs of the almost 200 companies represented by the two companies and will offer titles for purchase from other companies.

Separately, the Secure Digital Music Initiative (SDMI)--which groups about 150 companies from the music and technology industry, including Universal, AT&T, Matsushita, and Bertelsmann--said it agreed on a technical framework for ensuring copyright protection of digital music either downloaded from the Internet or transferred from other media.

The technical details have yet to be completed, although the SDMI said the framework will create a "mechanism to limit future piracy of copyrighted music on CDs and new formats" and is designed to be ready in time so that portable music devices will be able to incorporate the technology in time for Christmas.

"SDMI won't tell companies how to protect music, but it will deliver a framework where different solutions can find a home," said Leonardo Chiariglione, SDMI's executive director. He added that the possible four-company alliance was "completely compatible" with the objectives of the SDMI.

Copyright 1999, Bloomberg L.P. All Rights Reserved.

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