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Sony Licenses Music for Song-Swapping CenterSpan

CenterSpan Communications Corp. on Thursday said it struck a deal to distribute Sony Music Entertainment’s music on its peer-to-peer service, marking the first time a major record label has licensed its content to a file-sharing company.

CenterSpan agreed to pay Sony Music, a unit of Sony Corp., about $2 million in cash plus 283,556 shares and a warrant to buy 189,037 additional shares of its common stock at an exercise price at $8.11 per share, according to a filing with the Securities and Exchange Commission.

CenterSpan’s stock on Thursday closed up almost 41 cents at $8.75 on Nasdaq.

Internet content distributor CenterSpan bought controversial Napster-like audio and video Web site Scour.com in 2000 after Scour declared bankruptcy in the wake of a copyright infringement lawsuit.

CenterSpan in April 2001 launched a free trial of a new secure service known as C-Star CDN, including the underlying peer-to-peer technology of Scour that allows users to trade encrypted files authorized for copying by copyright holders.

The agreement lets CenterSpan provide music from Sony Music Entertainment artists to online service providers seeking to offer their subscribers streaming and downloadable music.

A CenterSpan spokesman said the company is also talking with other major recording labels, movie studios as well as online subscription services, such as Pressplay.

“This deal continues the experimental phase the music industry is going through as it tries to figure which digital distribution model is going to work,” said PJ McNealy, analyst with GartnerG2.

Napster, a once-popular peer-to-peer service that was also idled due to a copyright lawsuit, has signed a conditional licensing deal with MusicNet, a major label-backed subscription service.

When the deal between MusicNet and Napster was announced, several of the big labels involved in the venture said they would not license their music to Napster unless they were satisfied it had created a secure service that compensates artists fairly.

Analysts expect Napster’s deal will be abandoned because Napster is currently negotiating settlement and future licensing terms individually with each label involved in the copyright infringement lawsuit who are the partners in the MusicNet venture.

Portland, Oregon-based CenterSpan on Thursday also reported a fourth-quarter net loss from continuing operations of $6.4 million or 73 cents per share, compared with a net loss of $2.2 million or 35 cents per share.

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