MP3.com spends a cool $150 million on legal battle, but still manages to post a $20 million dollar profit.

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MP3.com Inc. lost $177.1 million for its second quarter ended June 30 largely due to costs associated with lawsuits against the company.

MP3.com is defending lawsuits by the five major record companies, as well as prominent music publishers. The company spent $150 million during the quarter for costs related to the legal actions which have arisen largely to to the My.MP3.com service which allowed MP3.com users to access their personal music catalogs via MP3.com's servers. Problems arose soon after the service was launched when major players in the record industry claimed the service breached their collective copyrights.

My.MP3.com allows users to 'beam' their CD collections to MP3.com servers, thus allowing them to listen to their music via any web-capable device. However, CDs were not beamed in entirity.

Instead, the identifying data for the CD was beamed and playback came courtesy of a duplication of the CD via MP3.com.

The Recording Industry Association of America acted on behalf of the five major labels and took MP3.com to court. An April 2000 summary judgement sided with the R.I.A.A. MP3.com immediately prevented My.MP3.com users from hearing the songs covered in the decision.

In June 2000, MP3.com reached separate lawsuit settlements with Warner Music Group and BMG Entertainment. Their respective catalogs were licensed. Details of the settlements have not been publicly released.

MP3.com is still in negotiation with Sony Music Entertainment, EMI Recorded Music and Universal Music Group.

Despite this MP3.com's financial situation is promising. It recorded net revenues of $20.2 million for the second quarter, compared to $1.9 million for the same period last year.

Hitsquad tip: MP3.com is a long-term winner. Once relations thaw with the R.I.A.A and the major labels, will MP3.com adopt a model similar to the subscription model launched by EMusic.com?

"Internet music-download company EMusic.com launched a new subscription service Monday (July 24) that will let users pay a monthly fee to download an unlimited number of songs from the company's archive of more than 125,000 licensed MP3s."
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