Lycos Records $39 Million Deal With MP3 Player Maker

The potential rewards of the growing digital audio business are worth at least $38.8 million to Lycos, Inc. (Nasdaq: LCOS), the Internet’s most popular search engine. That is how much Lycos agreed to pay, in the form of 1.1 million shares of Lycos stock, to acquire Internet Music Distribution Inc. (IMDI).

The maker of Sonique, one of several MP3 digital audio players available on the Internet, stands to make additional money on the sale if Sonique continues to do well in the market. Lycos stock closed Thursday at about $35.31 per share. The final value of its IMDI purchase will be set based on the company’s stock price when the deal closes.

Sonique is already available for download at the Lycos site, as well as at its own site and several others on the web. Lycos already includes an “MP3 Search” feature on its site that finds and plays the music title a user enters. The function eliminates the need for a user to search for music sites, connect to those sites, then find the music they want. Lycos also operates the Lycos Radio Network, launched in April, to provide continuous feeds of video and still images to go with the online music being played.

The company said the Sonique MP3 player is consistently in the top five of downloads from the popular site Downloads.com. It fits perfectly with Lycos’ MP3 search, which was recently developed with the Norwegian search engine, FAST, and now makes the portal a “one-stop” destination for search and playback technology, it said.

Developing Full-Scale Multi-Media

Lycos has been one of the more aggressive and innovative of the major portals in recent months. It is vigorously pursuing an acquisition plan that transforms the portal and its affiliated sites from pure content to a free-flowing stream of interactive multi-media.

With the launch of the Lycos Radio Network in April, the company was the first of the major portals to offer radio. Music is clearly one of the vanguard for Lycos and the acquisition of an established MP3 player will help advance its cause.

The battle between the recording industry and the MP3 industry has ebbed somewhat since it reached a cacophonous scale earlier this year. The recording industry has acknowledged — with egg on its face — that it missed the boat in not seeing that the Internet would play a huge role in the dissemination of music.

Major labels like Sony and Universal have recently struck deals with Internet companies to promote downloading music over the Web.

The MP3 industry has made concessions of its own. Some manufacturers of the digital compression devices needed to download the music have voluntarily agreed to standards developed by an industry group called the Secure Digital Music Initiative (SDMI).

These standards block portable MP3 players from accepting illegally created music files. Not all manufacturers have signed on to the standards, however, and it’s certain that the MP3 squabble is far from resolved.

Another Building Block

Acquiring the Sonique audio player is the next stepping stone in Lycos’ strategy to become a “multimedia company,” according to company President Bob Davis. Recognizing the huge business to be done in online entertainment, which still ranks as one of the top reasons computer users surf the web, Davis said Lycos hopes to become the site people think of first when they want to download music and other content.

IMDI calls the Sonique player “format-agnostic,” attempting to avoid the format wars that have arisen among various programmers. Sonique also supports secure music playback, giving Lycos a potential new revenue source through relationships the company may forge with intellectual property owners. Lycos will keep IMDI’s nine employees to continue running the Sonique operations as part of Lycos. The company did not say whether it plans to continue IMDI’s strategy of expanding access to Sonique on as many Web sites as possible to make it the most used audio player on the Internet.