Sony licenses music for song-swapping CenterSpan

LOS ANGELES, Feb 28 (Reuters) - CenterSpan Communications Corp. on Thursday said it struck a deal to distribute Sony Music Entertainment's music on its

LOS ANGELES, Feb 28 (Reuters) -

CenterSpanCommunications Corp. on Thursday saidit struck a deal to distribute Sony Music Entertainment's music onits peer-to-peer service, marking the first time a major recordlabel 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 awarrant to buy 189,037 additional shares of its common stock at anexercise price at $8.11 per share, according to a filing with theSecurities and Exchange Commission.

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

Internet content distributor CenterSpan bought controversialNapster-like audio and video Web site in 2000 after Scourdeclared bankruptcy in the wake of a copyright infringementlawsuit.

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

The agreement lets CenterSpan provide music from Sony MusicEntertainment artists to online service providers seeking to offertheir subscribers streaming and downloadable music.

A CenterSpan spokesman said the company is also talking withother major recording labels, movie studios as well as onlinesubscription services, such as Pressplay.

"This deal continues the experimental phase the music industryis going through as it tries to figure which digitaldistribution
model is going to work," said PJ McNealy, analyst withGartnerG2.

Napster, a once-popular peer-to-peer service that was also idleddue to a copyright lawsuit, has signed a conditional licensing dealwith 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 wouldnot license their music to Napster unless they were satisfied ithad created a secure service that compensates artists fairly.

Analysts expect Napster's deal will be abandoned because Napsteris currently negotiating settlement and future licensing termsindividually with each label involved in the copyright infringementlawsuit who are the partners in the MusicNet venture.

Portland, Oregon-based CenterSpan on Thursday also reported afourth-quarter net loss from continuing operations of $6.4 millionor 73 cents per share, compared with a net loss of $2.2 million or35 cents per share.