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It’s high time for the entertainment industry to embrace the new digital reality a sentiment reflected in this year’s Herring on Hollywood conference, entitled “Convergence: Deal With It.”

But as demonstrated at the conference, sponsored by tech trade magazine Red Herring and held last week at the Century Plaza Hotel, the music industry remains scared of the MP3 digital music files zinging around the Web.

“The (music) execs are still talking about how to make the new technology conform to the industry’s current business model, rather than about sitting down and really figuring out how to roll with the changes,” said one conference attendee.

A session called “Fight the Power” examined how digital changes are affecting the music industry, essentially using it as a case study on how the entertainment industry at large is changing in the digital age.

Particularly outspoken was Public Enemy rapper Chuck D., who challenged the record labels’ controlling influence over the music industry. Public Enemy released its latest album via the Net before it hit the stores earlier this year.

In related news, the Recording Industry Association of America, the Alliance of Artists and Recording Companies and San Jose-based Diamond Multimedia Systems Inc. finally have ended all litigation related to Diamonds’ Rio product after a fruitless 11 months.

The Rio is a walkman-sized portable Internet music player that downloads and plays CD-quality songs in the MP3 format. The recording industry groups had pursued injunctions barring sales of the device, claiming it aided piracy.

Razorfish Inc. a digital communications consulting and design company has acquired Santa Monica-based broadcast design firm Fuel Inc. and its commercial production unit, Tonga Inc., in a stock-and-cash transaction valued at $38 million.

The acquisition makes Razorfish well positioned to dominate its niche of providing services to the broadband and enhanced-television worlds.

“The people at Razorfish and I share a belief that everything that can go digital in the media will go digital,” said Fuel founder Seth Epstein. “This is a long-term game, and we’re going to be in the center of it.”

Epstein will remain head of the broadcast division, and no management or personnel changes are expected in the Santa Monica office.

HomeStore.com Inc., a Thousand Oaks-based real estate Web site company, has been hit with a $300-million lawsuit by franchiser Cendant Corp.

The suit seeks damages for an alleged breach of contract, claiming that HomeStore fraudulently procured exclusive listing rights for properties sold by Cendant’s real estate division. In return for the listings, HomeStore was to give Cendant an equity stake prior to its initial public offering.

The Internet company went public last Thursday, Aug. 5, raising $140 million by selling 7 million shares.

A HomeStore spokeswoman declined to comment on the lawsuit, citing an SEC quiet period.

Sara Fisher can be reached via email at [email protected].

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