Music Web Site Acquires Anti-Piracy Software Company

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After spending more than $200 million on a failed record label, among other endeavors, ArtistDirect Inc. will try its hand at another line of business: anti-piracy software.


L.A.-based ArtistDirect, founded by former Interscope Records mogul Frederick “Ted” Field, has acquired Marina del Rey-based MediaDefender Inc. for $42.5 million.


MediaDefender develops software that can detect and prevent illegal file swapping of copyrighted music on a peer-to-peer network like Kazaa.


It can also identify the offending user, a quality that media companies would find attractive. MediaDefender operates through service contracts with record labels to protect music on a title-by-title basis.


Jon Diamond, chief executive of ArtistDirect, said he hopes that the acquisition will provide “a compelling opportunity for marketing and promotion, because it’s a solution to the leading issue that the entertainment media industry is facing right now.”


Originally an online music network for signed and unsigned artists, ArtistDirect spent millions of dollars trying to establish a joint-venture record label, ArtistDirect Records, with Field in the unusual role of chief executive and joint-venture partner.


In a restructuring, ArtistDirect Records was deconsolidated and removed from the company’s balance sheet. The company pared down to the Internet business, which offers streaming music, video clips, ring tones, original content and music from signed and unsigned artists. ArtistDirect is the fourth-largest music destination site on the Web, with more than 500,000 artists.


Diamond said the company plans to extend MediaDefender’s anti-piracy offerings into video, software and games, hoping to attract more labels and media companies as customers.


ArtistDirect lost $3.3 million last year, after losing $21.7 million in 2003. In the first quarter, the company recorded $20.4 million in net income, thanks to a non-cash gain of $21 million on the sale of its interest in ArtistDirect Records.


ArtistDirect shares, traded over the counter, have been trading in the $3 range since March.



Yahoo! It’s ABC and CNN


Santa Monica-based Yahoo Media, the online media arm of Yahoo Inc., is expanding its Yahoo News site to include video from ABC News and CNN.com. Terms of the agreement were not disclosed. Starting in September, news stories will be accompanied by free video news feeds from the two networks.


Yahoo’s news stories are provided by the Associated Press and Reuters Group newswires, and several newspapers that include the Los Angeles Times, Chicago Tribune and Washington Post. A Yahoo Media spokesman said the video clips will be “supported by advertising,” meaning video ad clips, or mini-commercials, as well as typical Internet-style advertising. The companies declined to say how ad revenue would be divvied up.


For ABC and CNN.com, the deal will put their brand names and video in front of 27 million Yahoo users at least that’s the idea. But the video clips are hosted on the Yahoo News page, meaning that clicking on the video does not take the user to the CNN.com homepage. So the best ABC or CNN.com can hope for is that a user will be so intrigued by the news video that he will independently make the leap to the CNN.com site.


ABC and CNN.com are the first major news networks to offer video feeds to the Internet company. Up until now, Yahoo News pages had photos to accompany news stories, as well as some AP and Reuters video clips. The addition of news video advances Yahoo’s goal of creating a news destination that can offer as much as or more than a traditional news outlet.



Modern Marvel


What happens when Spider-Man and Daredevil fight? You just might find out but not until 2007. Santa Monica-based video game maker Activision Inc. just signed an agreement with Marvel Enterprises Inc. to develop games based on the collective universe of Marvel characters. The company already has licenses for individual characters such as Spider-Man, or groups such as the Fantastic Four and X-Men. This agreement opens up Marvel’s vaults to Activision. But there is a catch: the games have to involve a collection of Marvel characters, not just one.


Activision’s agreement encompasses “non-persistent” role-playing games games that are sold in the package. (Any upgrades or expansions are sold separately.) It does not include Web-based multi-player games that continue to evolve called “persistent” role-playing games as new players join in.


Marvel granted that license to Microsoft Inc. in July, to design games for its forthcoming Xbox 3.



*Staff Reporter Hilary Potkewitz can be reached by e-mail at

[email protected]

or by phone at 323-549-5225 ext. 226.

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