MTV Takes Stake in Diamond Multimedia's RioPort Business >By Rachel Chalmers

Computergram International, July 21, 1999

It seems that not all the players in the traditional music publishing industry are afraid of piracy threat posed by MP3. MTV Networks Online, a unit of Viacom Inc, has struck an exclusive multi-year marketing deal with RioPort Inc, a wholly owned subsidiary of Diamond Multimedia Systems Inc. RioPort's products include its controversial MP3 players, able to download MP3 files from the internet and play back music at near CD quality. Because MP3 has no built-in copyright protection mechanism, the Recording Industry Association of America (RIAA) sued Diamond, saying that the device violates the Audio Home Recording Act of 1992. Earlier this month, however, a US Court of Appeals ruled that the Rio "space-shifts" musical files the way a VCR "time-shifts" TV shows. That means personal use of MP3 is considered fair use under copyright law.

Undaunted by its loss in court, RIAA has gone ahead with its Secure Digital Music Initiative (SDMI), a specification aimed at ensuring that digital music is copyright-protected. But research firm Jupiter Communications LLC has urged record labels to reconsider their hard-line stance on MP3, to embrace the format and to explore new business models opened up by the free availability of digital music. MTV Networks Online appears to have been listening. It will provide RioPort with content and promotion on its network of web sites, including MTV.com, VH1.com, Nick.com, SonicNet and the forthcoming Buggles Project. In exchange, it will receive an equity stake in RioPort and a share in revenues from sales of digitally distributed music. Terms of the deal have not been disclosed.

Significantly, RioPort promises to provide music management software and licensing to its new part-owner. The partners promise that digital music made available through the deal will in fact be copyright-protected and SDMI compliant. RioPort also plans to create branded online audio players for each of the MTV Networks Online properties. It's the information revolution all over again: digital music will no longer be free, but it will be playable on nifty little designer devices.