The agreement will allow Musicbank users to listen to digital versions of BMG-produced CDs after they purchase them in selected stores. Terms were not disclosed.
The deal comes as BMG and other major record labels appear close to striking similar licensing arrangements with MP3.com for its My.MP3.com service. A licensing deal could come as soon as this week and would mostly likely involve millions of dollars paid to the record companies for past copyright violations, as well as future royalty payments for songs accessed over the service, according a source close to the negotiations.
The source added that the licensing terms could total up to $11 million a year and would not be exclusive to MP3.com.
The settlement talks are part of a lawsuit filed by the recording industry alleging that the My.MP3.com online music storage "locker" violated copyrights. My.MP3.com allowed people to listen to full CDs online through any computer with Web access. MP3.com bought tens of thousands of CDs, created a database of MP3-encoded downloads, and offered access to anyone who could prove they bought the CD by placing the disk in their computer.
A federal judge ruled MP3.com's practices were illegal because it replayed CDs it had copied without permission from recording companies. Soon after the ruling, MP3.com pulled all major record label CDs off its My.MP3.com service.
Online music storage has also attracted the attention of other Internet giants hungry to step into expanding their music efforts.
As first reported by CNET News.com, Yahoo has been in negotiations to acquire Myplay, also an online music-storage service. Negotiations have since stumbled, however, partly because of contractual hurdles from a deal that Myplay struck with America Online in March, according to sources close to the talks.
Although the Musicbank service will not officially launch until September, BMG has signed on as the first major music licenser. Musicbank expects to strike deals with other major record labels and music retailers by the time it launches, according to Musicbank's chief executive, Michael Downing.
"We're going to launch with all the labels," Downing said. "We expect those deals to be done shortly."
The service Musicbank plans to launch aims to work with offline CD retailers as the primary way to load songs on a person's online account, Downing said. When shoppers purchase a CD at a partner retail store, the shopper can request a digital version of the CD in his or her Musicbank account. The consumer can then listen to an audio stream of the CD from any computer with Net access.
Musicbank will generate revenues through advertising spots on the site and through its audio streams. The company plans to introduce a high-speed version of its service, for which it will charge subscriptions. It also plans to offer wireless versions of its service.
Musicbank is a start-up funded by Atlas Ventures, Bertelsmann's venture capital arm, which is part of BMG's parent company. Downing said the Bertelsmann funding did not "play in that much" with its BMG deal.
News.com's John Borland contributed to this report.