Bugs Music gives up management control

Bugs Music, the country`s largest online music provider, said yesterday that it plans to sell 60 percent of the company to local record companies to settle its lengthy copyright dispute with the music industry.

The online company declined to disclose the financial terms of sale or name the companies involved in the deal.

"We concluded that giving up our management control by selling more than half of the shares to recording companies is the only way for us to end the conflict with the local music industry and put the business back on track," said Bugs Music Chief Executive Park Sung-hoon.

"By taking over the majority shares and management rights, the recording companies agreed to cooperate in settling the copyright issue and provide Bugs Music more music content to carry," he said.

Park will step down from his position and Kim Kyung-nam, a senior official from industry lobby Korean Association of Phonogram Producers, is expected to be named as the interim chief executive.

Major record companies such as Yedang Entertainment Co. and Doremi Media Co., members of the Korean Association of Phonogram Producers and that were involved in past legal disputes with Bugs Music, are likely to be on the receiving end of the takeover. Officials from the association could not be reached for comment.

Bugs Music operates the online music streaming site www.bugs.co.kr, which has more than 16 million registered users and ranks fifth among all web sites here by number of visits. Bugs Music has been providing free music-streaming services since 2000, allowing subscribers to listen to music files but not download them.

The Korean Association of Phonogram Producers and 13 recording companies, including SM Entertainment Co. and YBM Seoul Records Inc., filed a lawsuit accusing Bugs Music of illegal reproduction of copyrighted music and demanded its services be blocked. In the end, Bugs Music was forced to delete 40,000 music files owned by the record companies from its database.

Bugs Music and the association had reached an agreement to end their conflict last year, with the music lobby accepting the Seoul District Court`s meditation to receive 2.22 billion won ($1.9 million) to compensate for copyright infringement.

However, Bugs Music failed to reach an agreement with a number of record companies, including SM Entertainment, YBM Seoul Records and Yedang Entertainment. The companies went on with their lawsuits and Park was given an 18-month sentence suspended for three years after the first ruling last month.

With an Internet penetration rate that approaches 70 percent, the free distribution of online music has always been at the center of copyright disputes here. According to the Samsung Economic Research Institute, the digital music market grew to 190 billion won in 2003 to overtake the size of the offline market. With the government implementing stronger measures to protect copyrights, industry watchers are predicting an explosive increase for the digital music segment.

Last month, the government enforced a new law that bans individuals or companies from providing or sharing copyrighted music without the consent of the record companies, banning the trading of music files through peer-to-peer software, e-mail or weblogs. Under the new law, online music distributors such as Bugs Music and Soribada, the operator of the country`s most popular peer-to-peer site www.soribada.com, have been forced to abandon their free-service model and are currently setting up new services that charge subscriber fees to cover royalties to the record companies.

(thkim@heraldm.com)









By Kim Tong-hyung