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CenterSpan Purchases Scour's assets

The bidding war for Scour's technical assets ended last week when Judge March of the U.S. Bankruptcy Court in Los Angeles, accepted CenterSpan's (www.centerspan.com) offer of $9 million in cash and common stock, as the best and highest bid. Both Liquid Audio ( www.liquidaudio.com) and Listen.com (www.listen.com) had placed bids on the assets.

The specific terms require $5,500,000 in cash and $3,500,000 in newly issued CenterSpan common stock, which represents 333,333 shares at a price of $10.50 per share, which was the closing price of CenterSpan's stock on Tuesday December 12. The acquisition will be accounted for as a purchase transaction and is expected to close by Tuesday, December 19, 2000.

In early November, Scour (www.scour.com) shut down its controversial Scour Exchange service -- which allowed users to share files including music, movies, and pictures -- in response to lawsuits from the MPAA and RIAA. Under the financial pressures of the legal fight, Scour filed voluntary a Chapter 11 petition in U.S. Bankruptcy Court on October 12.

By purchasing the assets of Scour under the jurisdiction of the court, Centerspan gains the technology without taking on its liabilities. According to Keith Halasy, corporate marketing director for Centerspan, the company is planning on integrating Scour's technology with its own peer-to-peer back end.

Liquid Audio's Solution

Liquid Audio dropped out saying the price exceeded its limits.

Kimberly Strop, spokesperson at Liquid Audio, said that it would have used the service to distribute music legally by incorporating digital rights management (DRM). So if a user tried to download a song that was protected, they would get a 30 second sample and then be prompted to buy the song digitally.

Liquid Audio's involvement in the bidding comes as a surprise since it has based its business on DRM, working with many labels to distribute and sell music online. It also made a deal recently with Tower Records to build kiosks in its music stores. Strop indicated that Liquid Audio could have built a subscription service for Tower.

Despite losing the Scour bid, Liquid Audio is still looking at other ways to get into the peer-to-peer world, including an acquisition.

Who Is CenterSpan?

CenterSpan, an Intel Capital portfolio company, was formally known as ThrustMaker Corporation and specialized in development of PC game peripherals, such as joysticks and driver wheels. In September 1999, the company sold its hardware business, including the ThrustMaster name, to focus exclusively on peer-to-peer communication software. In May 2000, the company launched its first Internet product, Socket, a downloadable device that integrated instant messaging, voice conferencing and multiplayer gaming.

CenterSpan is looking to leverage the high visibility of the Scour brand and its 4.5 million registered users, to launch the company into the digital content space, says Halasy. He also indicated that the company was in employment discussions with the five founders of Scour, and the few employees that have remained with the company since it ceased operations of the Scour Exchange.

Learning from the condemnation of Scour and Napster by the record industry and content owners, CenterSpan is already in negotiations with content owners to provide legal distribution. To date the company has announced one distribution agreement with a content company; Moviehead.com an Internet movie portal, distributor and broadcaster of films, videos and music.

The End of Free Sharing

There won't be anymore free file exchanges since CenterSpan plans on integrating digital rights management (DRM) for all content distributed over its service. The majority of the content available on the new service, which will be launched in beta before the end of the first quarter 2001, will be provided by content owners. Halasy did indicate CenterSpan would eventually allow self-publishing, but only for content for which the user owns the rights.

According to Halasy, the beta launch will likely be free of charge, to introduce users to the new technology. CenterSpan has not worked out the details for a payment system, however. Whether it would be subscription based or pay-per-play, with possibly some free services.

A week before the bidding concluded, CenterSpan announced that a private investor agreed to purchase 1,428,571 newly issued shares of the company's common stock at a price of $7 per share for a total of $10 million.

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