Cox Interactive takes stake in MP3.com

Cox Interactive Media, which is a subsidiary of media giant Cox Enterprises, will get a 10 percent stake in MP3.com with the investment, the companies said.

The surprise move is of fortuitous timing for MP3.com, which is planning an initial public stock offering. The company, which has been at the center of controversy surrounding the disputed MP3 (MPEG 1, Audio Layer 3) audio compression format, filed with the Securities and Exchange Commission for an IPO last month, looking to raise up to $115 million. The site received an $11 million investment in January from venture firm Sequoia Capital and Idealab.

Michael Robertson, chief executive of MP3.com, declined comment, citing the standard "quiet period" mandated by the SEC before a company goes public to avoid misinformation for potential investors. A Cox Interactive spokeswoman declined comment.

Digital music format MP3, for which the company is named, allows users to easily download high-quality audio files to a PC hard drive or portable player. The format itself is legal but is vociferously opposed by many in the mainstream record industry because it allows for the easy distribution of unauthorized copies of copyright-protected music. Still, growing interest by consumers has led a number of companies to embrace MP3--including America Online, which last week acquired Nullsoft, maker of the popular Winamp MP3 player.

MP3.com has served as a music news, download, and community site for the format's rising number of grassroots supporters. All the songs the company offers are legal; most are from relatively unknown bands looking for exposure.

Cox's combined arsenal of media properties could provide substantial media exposure for MP3.com, which has enjoyed great popularity among early adopters. One of its biggest challenges ahead is reaching the mass market, observers have said.

Cox Enterprises operates a number of newspaper, broadcast, cable television distribution, and auto auction interests. Cox Interactive Media boasts a network of Web sites, including 25 local city sites.

Online music sales are expected to reach $4 billion, or 8 percent of the $47 billion in expected music sales in 2004, according to a recent report by London-based Market Tracking International.

As a result of the Cox investment, the two firms have formed a joint venture that will create and operate various music-related Web sites, the companies said in a statement. They will contribute roughly equal amounts to the venture and will share advertising and e-commerce revenue that arises from the sites.

In addition, David Easterly, president of Cox Enterprises, will join MP3.com's board of directors, the companies said. Already on the board is Gateway chief executive Ted Waitt, who owns 1.5 million shares of MP3.com, or a 3.24 percent stake, according to MP3.com's SEC filing.