Universal Near Deal With Video Site on Royalties

By SAUL HANSELL

Universal Music Group is poised to win a small battle in its war to claim royalties from sites that allow users to upload videos that contain its music. Universal, the country’s largest music label, is in the final stages of negotiating a settlement with Bolt.com, an online community that it sued last November over copyright infringement. Bolt has agreed to pay a settlement valued at several million dollars, said Aaron Cohen, Bolt’s chief executive. Bolt will also agree to pay royalties in the future any time its users submit videos that contain Universal Music.

Peter Lofrumento, a Universal spokesman, confirmed that the company, which represents artists like U2, Kanye West and Mariah Carey, is in talks with Bolt. The settlement could be concluded as soon as this week. Bolt is also negotiating similar royalty arrangements with other music labels, including Warner Music Group, Mr. Cohen said.

To pay for the settlement, which will combine cash, stock and advertising credits, Bolt has agreed to sell itself to GoFish, a smaller rival, for as much as $30 million in GoFish stock. “This deal is economically painful to Bolt shareholders,” Mr. Cohen said. “It is setting a precedent that companies that violate copyright at minimum risk litigation.” Universal, a unit of Vivendi, hopes the settlement will set a precedent that will help its ongoing case against MySpace, the vast social network owned by the News Corporation, and against Grouper, a video sharing site owned by Sony. Universal has sued both for copyright infringement.

Representatives of the News Corporation and Sony declined to comment on the specifics of Universal’s claims, but they both asserted that their Internet sites were in compliance with copyright law. Music executives familiar with the cases said that there were not active settlement discussions between Universal and either the News Corporation or Sony. Lawyers on both sides are gathering evidence and preparing for arguments in court toward the end of this year.

After it was sued, MySpace started trying to remove Universal content uploaded by its users. It has been using technology to automatically identify audio files from Universal, and today it plans to announce that it has started to test technology that will automatically block videos that use Universal songs.

"MySpace is dedicated to ensuring that content owners, whether large or small, can both promote and protect their content in our community,” Chris DeWolfe, the chief executive of MySpace, said in a statement. “For MySpace, video filtering is about protecting artists and the work they create.”

Mr. Lofrumento said this move did not address what Universal considers the past copyright violations by MySpace. “The copyright law doesn’t give people the right to engage in the massive infringement of our content to build a thriving business and then, after the fact, avoid exposure by saying they will prospectively start to filter,” he said.

These issues are central in the intense jockeying between Hollywood studios and YouTube over its potential liability for copyright infringement from videos uploaded in the past and royalties for future use.

Google, which owns YouTube, has offered some studios as much as $100 million to reach agreements, but it has struck none so far. Last month Viacom said negotiations broke down and asked YouTube to remove 100,000 video clips that it said contained its copyrighted content. Just before it was acquired by Google last year, YouTube reached settlements with several music companies, including Warner and Universal, agreeing to pay royalties for both past and future videos using their music. It agreed to use the sort of automatic filtering that MySpace has started to use, but has said the technology is not ready yet.

At issue is a provision of a 1998 amendment to copyright law, known as the Digital Millennium Copyright Act, that was meant to protect certain Internet companies from copyright violations made by their users. It says that those companies do not have to monitor files transmitted or stored by their users for copyrighted material. Rather, they simply must remove that content promptly when the copyright holder asks them to.

Universal and other music and film companies have argued that this act does not apply to sites like MySpace and YouTube. Moving forward, Bolt and GoFish also plan to use technology that automatically scans the audio tracks of videos that are uploaded and identifies those that contain songs by Universal and other companies with which it has arrangements. It will pay royalties both on complete copyrighted works, like music videos, and also on so-called mashups, in which users add copyrighted music to their own creations.

Bolt, which was started in 1996 as a Web site for teenagers, has refashioned itself as a home for user-created video and music. In December it had 5.3 million users in the United States, according to ComScore Media Metrix. It had revenue of $7 million last year. GoFish was started in 2005 by Global Asset Capital, a venture capital firm. Last year it went public through a procedure known as a reverse merger, under which it was acquired by a company that had publicly traded shares but no operations. Despite virtually no revenue, it has a market value of $134 million. GoFish.com, which allows people to watch user-uploaded videos much as YouTube does, had 1.4 million users in December.

The combined company will focus less on displaying Hollywood material and more on content from users and from small production companies. GoFish, for example, has created programs that combine some professional content and submissions by users. In one such program, America’s Dream Date, users submit videos of themselves performing certain tasks. The top man and women, as chosen by the audience, win a vacation together.

“If you can tap into the energy and excitement of users and channel it into original programming, it represents an unprecedented opportunity for consumers to engage,” said Tabreez Verjee, a director of Global Asset Capital who is on the board of GoFish. “Original content has the ability to draw brand advertisers in a way that can help us create a meaningful business.” The chief executive of the combined company will be Michael Downing, the chief executive of GoFish. The company will have two co-presidents, Mr. Verjee and Mr. Cohen.