Sony settles in lawsuit vs.

UMG only label not settling with Netco.

On Monday digital music company reached a legal settlement with Sony Music Entertainment over its service — leaving the Universal Music Group as the only label with which the company has not come to terms.

But that final hurdle is also the highest: UMG is the largest player in the music biz, with almost 30% of the year-to-date album sales, according to SoundScan.

Market share may not be the only reason the music giant may be hesitating to settle with the Netco; its reluctance may reflect a power play in which the traditional music industry is demonstrating its dominance over upstart dot-coms. Execs with UMG declined to comment.

Industry sources said the agreements with the other labels (Sony, EMI, BMG and Warner Music Group) contain a “most favored nation” clause. Under such a clause, if one of the labels settles with for significantly more money than the others, the rest must be boosted to similar financial terms.

With these conditions, UMG’s holdout may benefit the rest of the industry at the expense of, which as of Monday’s trading close of $7.75 had a market capitalization of about $550 million. The Netco slipped more than 4% in trading, although news of the settlement came after the stock market closed.

The deals with the music labels will put a hefty dent in’s checkbook, although the expense will probably be less than that of a lengthy court battle with one of the majors. In its last earnings report, the company revealed that it set aside $150 million for the settlements.

While financial specifics of the Sony deal were not released (the Netco simply said it would “make a payment for past acts”), the previous settlement with EMI totaled $20 million. Settlement also grants a nonexclusive license to use recordings from Sony artists like Aerosmith, the Clash and Macy Gray.

“It is clear that Sony Music Entertainment understands and embraces the Internet and values responsible technologies that excite consumers and reward content owners,” said Michael Robertson, chairman and CEO of “ respects the rights of copyright holders and now, with this settlement and license, we can offer consumers an avenue to access music online from CDs they have purchased.”

The service allowed Netizens to store music digitally and then access it from any computer. The record labels sued the Netco, claiming that the 80,000-song database created for the service was a violation of copyright law.

“Sony Music Entertainment strongly enforces its copyrights,” said Al Smith, senior veepee of Sony Music Entertainment. “This settlement affirms and upholds the right of copyright owners to be paid for the use of their works on the Internet.”

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