LOS ANGELES--A New York City night-life ordinance is unlikely to see the light of day in 2004. But supporters say the law, which seeks to soften club noise for Manhattan residents, will eventually be





Breaking News

Licensing Deals Abound In Wireless Market

By Brian Garrity and Carla Hay

NEW YORK--As the wireless music market evolves in the United States, deal-making abounds among labels, handset makers, cell phone companies and entertainment companies targeting the space.

Deals over the next year will center around licensing agreements that will enable carriers to sell mastertones (ring tones that use actual songs instead of simulations) either directly to consumers or through third-party distributors.

The bulk of ringtones currently sold in the U.S. are by carriers such as Sprint, Verizon, T-Mobile, Vigin Mobile USA, and AT&T/Cingular.

In January, Universal Music Group and Warner Music Group became the latest players in Sprint PCS Vision's expanding mastertone business, through a service called Music Tones. Under the deal, UMG and WMG make select songs available for downloadable purchase.

Music Tones has been available through Sony since last July. UMG songs debuted in January, and WMG songs are expected to debut later this year.

WMG tunes that will become available as mastertones include songs from Green Day, Seal Jet, Jason Mraz, Sonny & Cher, the Spinners, Yes, Grandmaster Flash and Bobby Darin.

UMG's Music Tones include music from Sheryl Crow, Sting, Hoobastank, Black Eyed Peas, Smash Mouth and Andrew W.K.

This effort is merely the "tip of the iceberg," says David Ring, VP of business affairs at UMG e-Labs. "It's the first of many such deals we will be doing with wireless companies."

BLAZING TRAILS
And Sprint's not the only one getting into the mastertone act.

BMG recently agreed to a licensing deal with Zingy, a New York-based provider of ringtones and wireless services, under which it will distribute BMG master recordings for use as ringtones.

Among the songs available in the deal are tunes from Justin Timberlake, OutKast and Sarah McLachlan. The deal involves BMG's catalog as well.

Zingy customers can download the recordings directly through their mobile devices or via computer. Zingy will also develop a series of mobile promotions to support BMG releases.

The ringtones will be available through Zingy's distribution network, which includes Microsoft's MSN, AOL and MTV. Customers can browse and download the context through their mobile device or computer.

TARGETING IMPULSE BUYS
Elsewhere, other companies are focusing on future applications. Handset makers like Nokia will roll out phones that will take music applications beyond ringtones.

The company is developing a feature called "visual radio" that allows a handset to receive FM radio signals and matches the audio content with related pictures, graphics and other content.

"What we're bringing to the table with visual radio is impulse buying," says Reidar Wasenius, a senior project manager with Nokia's Nokia Multimedia group. "You happen to hear something in a certain mood and the radio station offers you the purchase opportunity. You do it there and then."

Elsewhere, Berkeley, Calif.-based Idetic has launched a service that enables Sprint cellular subscribers to watch live TV, including three music video channels, through their mobile phones.

The company also is already working on an e-commerce solution that will enable viewers tuned in to the music video channels to buy the video, ring tones or music from streamed videos, says Dr. Phillip Alvelda, CEO of Idetic.

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NYC Residents, Club Owners Battle Over Noise

By Susanne Ault

LOS ANGELES--A New York City night-life ordinance is unlikely to see the light of day in 2004. But supporters say the law, which seeks to soften club noise for Manhattan residents, will eventually be pushed through the NYC legislature.

Gretchen Dykstra, the commission of the NYC Department of Consumer Affairs, initially proposed the "Nightlife License" in November 2003. The idea was two-fold: to abolish an antiquated dancing license and replace it with a license that would force clubs to follow noise, fire and security regulations.

Ever since New York banned smoking inside bars and restaurants last year, nightclubbers have increasingly been milling outside venues, triggering complaints from nearby residents and businesses.

In order to get a nightlife license, clubs must certify that music played in their clubs won't enter neighboring residences. This may require club-owners to shell out money for soundproofing enhancements. Clubs would also be ordered to provide security and keep nearby sidewalks clean.

A current list of proposed nightlife provisions is available at http://www.nyc.gov/html/dca/pdf/nightlifeproposal.pdf.

If clubs can't meet these standards, they can still operate their facilities. But all unlicensed clubs will be forced to close by 1 a.m. Affected venues include all N.Y. buildings housing over 75 people in a residential zone and over 200 people in a commercial zone; support noise levels louder than 90 decibles, and places which generally stay open past 1 a.m.

Many clubs won't be able to abide by the licensing guidelines, says Bob Zuckerman, executive director of the New York Nighlife Association. "They would choose to close at 1 a.m., and likely suffering financially, to avoid having to apply in the first place

"No bar or club would be able to withstand those provisions. Your average walkman turned halfway up is 90 decibals. That is not ear-shattering," says Zuckerman.

Soundproofing upgrades could set a club back as much as $100,000, observers say.

The local press covered a February meeting with NYNA members, which include Hogs and Heifer owner Michelle Dell and Union Station/Lotus owner David Rabin, bringing attention to club grievances.

Days later, NYC Mayor Michael Bloomberg said he would not seek to push a revamped nightlife law this year.

Nevertheless, Dykstra says she will continue to seek input for a revised license proposal. She wants to solve neighborhood disruption problems without disrupting local clubs.

At this point, there are no official hearings scheduled to discuss modifying the proposed nightlife provisions. But talks are expected soon within New York's regular community board group meetings.

Arthur Gregory, owner of the A&M Roadhouse club and chairman of the Tribeca community board, favors decreasing club noise. "You can have it as loud as you want, but just so people across the street or upstairs can't hear it," he says.

He says paying for extra soundproofing "is just the cost of doing business. If you want to do this business, you need to be professional. All the major theater (concert venues in NY) are sound-proofed."

Meanwhile, Canal Street district manager Judy Duffy says club owners and residents can compromise. "Everyone is never going to be happy. But I think we need to find common ground and (pass) a sensible rule," she says.

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AOL Internet Unit Seen On Chopping Block

By Paul Resnikoff

BOSTON--Speculation over a potential sale, spin-off or massive restructuring of the AOL online unit by parent Time Warner is raising some questions about key online music properties.

Time Warner has been in a selling mood, dumping its CD-production and distribution facilities, as well as the Warner Music label over the past few months.

Now, the entire AOL Internet unit may on the chopping block once again, with Goldman Sachs allegedly expected to present options in an upcoming board meeting.

AOL has suffered an 8% subscriber drop over the last two years as consumers discover cheaper access options.

Meanwhile, Time Warner is lugging a massive multi-billion-dollar debt load which will undoubtedly influence future decisions.

AOL music properties on the AOL side now face an uncertain fate, including: MusicNet@AOL, Sessions@AOL, Radio@AOL, AOL First Listen, AOL Music Mobile Club, and AOL's relationship with iTunes.

AOL Music attracts 15 million unique visitors per month.

Paul Resnikoff is the editor of DigitalMusicNews.com.

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Radio Firing Fuels Censorship Debate

By Jesse Hiestand

LOS ANGELES--A radio commentator who was fired from Santa Monica, Calif.-based KCRW-FM for allowing an obscene word to be broadcast is says the incident is having a chilling effect on colleagues in public radio.

"That I could get fired over this has everybody in a white-hot panic," Sandra Tsing Loh told guests of a Beverly Hills Bar Assn. lunch on censorship. "I think I've gotten more media attention than would merit for a person who works for $150 a week."

Loh was fired after a technician failed to bleep the word "fuck" during a Feb. 29 radio commentary on knitting. She was offered her job back, but declined to resume "The Loh Life" on KCRW.

Other panelists offered opinions on the indecency issue, which has prompted legal action by federal lawmakers.

First Amendment attorney Stephen Rohde, a former president of the American Civil Liberties Union, said he was worried that the Federal Communications Commission's recent crackdown could lead to the stifling of political views.

"We cannot trivialize the threat that's posed when you empower an arm of the government to have powers over the ideas that are expressed," Rohde said.

Part of the problem is vague wording of the legal definition of obscenity, said Jeffrey Douglas, chairman of the Free Speech Coalition and an attorney for the adult industry.

"There is no possible way that an artist or anyone else who is attempting to communicate can tell in advance how the material will be deemed by a jury based on local contemporary community standards," Douglas said.

As vp standards and practices for Fox Cable Networks, Darlene Lieblich said the networks are now protecting the public from words and images that wouldn't raise an eyebrow in international markets.

"The atmosphere in the cable industry right now is [one of] great fear that we are going to be scrutinized and regulated," Lieblich said.

Jesse Hiestand writes for Billboard sister publication The Hollywood Reporter.

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Fla. Bar Hosts Entertainment Law Event

By Samantha Chang

NEW YORK--The Florida Bar Assn.'s Entertainment Arts and Sports Law Section will host its sixth annual legal symposium on music, film and TV on March 26.

The event, which will be held at the Eden Roc Renaissance Resort in Miami, will cover issues in music, film, TV and fashion.

"This fascinating symposium provides entertainment law practitioners with cutting-edge education on legal issues and trends," says Richard W. Rappaport, event co-chairman.

The event will feature a keynote speech from R. Donahue Peebles, president/CEO of Peebles Atlantic Development Corp. and a Billboard Magazine/ELW interview with Hollywood producer Ken Atchity ("Life or Something Like It" and "Joe Somebody").

The symposium will offer 10 hours of CLE credits.

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Washington Report

State Attys To P2P Networks: Clean Up Your Act

By Brooks Boliek

WASHINGTON--As the war against peer-to-peer networks escalates, the highest-ranking state law enforcement officers are weighing in on the debate.

According to a draft letter by California Attorney General Bill Lockyer, the attorneys general want to pressure the file-sharing networks to clean up their acts.

Lockyer is circulating the draft among his peers, as the AGs express concern over what they call a series of ills perpetrated by P2P networks.

"The growth in P2P file-sharing has brought with it increased awareness of the risks associated with using these software programs," the letter states.

"Whether the widespread availability of pornography, including child pornography, the disclosure of sensitive personal information to millions of people, the exposure to pernicious computer worms and viruses or the threat of legal liability for copyright infringement, P2P file-sharing software has proven costly and dangerous for many consumers," the letter continues.

In the letter, which targets the operators of P2P services, the AGs accuse the companies of irresponsibly putting people at risk.

"We write to express our growing concern over the risks posed to consumers in our states from the use of your company's peer-to-peer file-sharing software and your firm's inadequate response to those risks," the letter states.

Sources with knowledge of the letter said that the MPAA prepared the draft for Lockyer. In the metadata of the e-mailed version of the letter a "stevensonv" worked on the letter. Vans Stevenson is the MPAA's senior vp state legislative affairs.

"It's pretty heinous that any kind of private-interest group is authoring a letter for our elected officials," a source says.

While the MPAA received input into the letter's contents, Stevenson says it wasn't the author.

"We didn't write it," he stresses. "Was input sought from us? Yes, and probably from others as well."

There's nothing unusual about the California attorney general having an interest in what is going on in the copyright industries, Stevenson explains.

"We're gratified that Attorney General Lockyer continues to have an interest and concern about P2P file-sharing software because of the impact of all the illegal file copying has on the motion picture and sound recording industries," he says.

It is unclear when the Lockyer and the other AGs would submit the letter, as sources call it "a work in progress," but it's clear that some AGs have grave concerns about the P2P services.

Brooks Boliek writes for Billboard sister publication The Hollywood Reporter.

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Writers Guild Head Holland Exits

By Jesse Hiestand

LOS ANGELES--Charles Holland resigned last Thursday as president of the Writers Guild of America West as controversy continues to erupt over his claims to have served in the U.S. armed forces.

The timing of the exit is crucial, as the WGA enters protracted contract negotiations with studios.

Current VP Daniel Petrie Jr. will succeed Holland, who has come under fire after media reports challenged his purported tenure in the U.S. Army Special Forces.

"As committed as I am to fulfilling my responsibilities and to standing up for myself, the guild is more important than one man," Holland said. "I have no choice but to remove myself and clear the air for the only issue that matters: the best possible deal for the benefit of the most possible writers."

The Department of Labor is now investigating guild election procedures following the controversy, which has triggered a recall petition drive.

Holland's exit marks the second time this year that a WGA West president has resigned. Holland took over for Victoria Riskin because she had not been eligible to run in the September election.

While contract talks between the WGA and the Alliance of Motion Picture and Television Producers are not yet scheduled, there is widespread concern that the talks may trigger a strike because of the WGA's demands, which include higher DVD residuals. The contract expires May 2.

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'Stern' Defense Irks Senator

By Brooks Boliek

WASHINGTON--Sen. Sam Brownback, R-Kansas, isn't buying Viacom president and chief operating officer Mel Karmazin's contention that the Feb. 24 broadcast of "The Howard Stern Show" doesn't run afoul of the nation's indecency regulations.

Brownback feels that Karmazin's defense of Stern is less than what the lawmaker had hoped, says a spokesman for the senator.

"Sen. Brownback was pleased to get a response from Viacom, but felt his question has not been adequately answered," says Brian Hart, Brownback's communications director. "Sen. Brownback feels the tone of the response, as well as Mr. Karmazin's testimony before the House Commerce Committee, seems like 'business as usual' instead of progressing toward upholding existing FCC regulations and working toward cleaning up our public airwaves."

Hart says his boss is drafting a follow-up letter that will include specific on-air references in hopes that Karmazin will explain how this material is not indecent under their own guidelines. Karmazin recently set a "zero-tolerance" policy for on-air indecency.

In his letter, Karmazin complained that the FCC's indecency standard is too broad and vague for broadcasters to make a decision about what should and what should not be on the air.

"While I understand that there were some sexual references in the interview, I have been advised that our editors made the good faith judgment that the references which aired were not graphic, patently offensive descriptions of sexual activity," Karmazin wrote.

Brownback, a leading Senate media critic, is the author of legislation that seeks to raise fines for indecent broadcasts for companies and individuals to $500,000. Similar legislation has already been approved by the full House.

Brooks Boliek writes for Billboard sister publication The Hollywood Reporter.

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International Section

EU Market Set For Download Explosion

By Paul Resnikoff

BOSTON--A recently released research report by Strategy Analytics predicts a boom in the European legitimate digital music market.

Projecting a surge of up to 650 million euros in annual revenue, the firm cites broadband consumer willingness to download and stream music legally for the expected surge.

Though the report may be off target when explaining user needs for "improved song selection," observers say dissatisfaction is increasingly surfacing with bundled downloads, spyware, adware and spoof files currently found in illegal P2P services.

While OD2 has done a lot to enable the European legitimate space, observers say most are waiting for major players like Napster and iTunes to shake up the space.

Paul Resnikoff is the editor of DigitalMusicNews.com

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UK Film Biz Eyes Tax Break

By Stuart Kemp

LONDON--The U.K. plans to rejig tax breaks for filmmakers in a move that paves the way for producers to directly benefit from the changes.

The chancellor of the exchequer Gordon Brown outlined the proposals in his budget speech to members of parliament at a packed House of Commons last Wednesday.

He told the MPs that he intends "to transfer the available reliefs for British-made films with budgets below £15 million ($27 million) from third parties, a minority of whom have abused them, and to pay reliefs directly to the filmmakers themselves."

The film industry breathed a huge sigh of relief at securing Brown's commitment to a tax concession and cheered the fact that the move does not carry a time limit.

Stuart Kemp writes for Billboard sister publication The Hollywood Reporter.

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Intl Acts Liable For Taxes Under New U.K. Rule

By Roger Pearson

London--International acts who perform in the U.K. will likely face stricter tax liability, following a recent High Court ruling concerning American tennis great Andre Agassi.

The Inland Revenue has ruled that Agassi must pay income taxes of £27,520, based on endorsement income of £23,750 from German company Head Sports and £102,158 from U.S. sportswear giant Nike for the tax year 1998-99.

The court reasoned that Agassi was liable for U.K. taxes because the money he made from endorsements for Nike and Head were due in part from exposure he gets from playing in high-profile tournaments like Wimbledon.

The court rejected Agassi's argument that he, Nike and Head don't have a tax presence in the U.K.

Lawyers say the ruling will significantly impact the tax liability of international athletes and entertainers who appear in the U.K. because their lucrative endorsement deals from foreign sponsors will now likely be scrutinized by the British tax-man.

In dismissing Agassi's challenge, Mr Justice Lightman wrote: "It is common ground that section 556 of the 1988 Income Tax Act subjects non-residents to tax, if the payment is made by an English company or a foreign company with a tax presence here. The question raised is whether they are intended to be excused from liability if, instead, they are paid by a foreign company with no tax presence here.

"The plain and obvious intention of the legislature was to impose an obligation on the person making the payment irrespective of his tax presence here."

Agassi is expected to appeal the ruling.

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EC To Set Antitrust Sanctions Vs. Microsoft This Week

By Leo Cendrowicz

BRUSSELS--The European Commission, the European Union's executive authority, this week will announce antitrust sanctions against Microsoft, as well as confirm fines totaling up to $300 million.

Microsoft was ordered to remove its music and movie-playing service from its Windows operating system after failing to ward off European regulators in last-minute antitrust talks last Thursday.

The E.C. is asking Microsoft to distribute two different-priced versions of Windows: one with the Window Media Player system and one without.

IMPASSE AFTER TALKS
The move comes after European Competition Commissioner Mario Monti and Microsoft CEO Steve Ballmer failed to bridge their differences following two days of talks in Brussels on how to format new versions of Windows.

"A settlement to the Microsoft case has not been possible," Monti said. "We made substantial progress towards resolving the problem that had arisen in the past, but we were unable to agree on commitments for future conduct."

The impasse marks the end of a five-year E.U. probe called by rivals RealNetworks and Apple, who had argued that Windows Media Player had an unfair advantage over other movie, music, radio and TV streaming software because Microsoft "bundled" it onto all sales of the regular Windows system. The EC had urged Microsoft to distribute a version of Windows without the media player at a discount.

'ABUSIVE' MARKET POSITION
Monti said it was necessary to set a legal precedent against a company that is abusing its dominant market position, as 92% of all computers use Windows.

"I had to take a decision on what was best for competition and for consumers in Europe," he said. "It is essential to have a clear principle for the future conduct of a company which has such a strong dominant position in the market."

E.U. government representatives will confirm the size of the fine against Microsoft on Monday.

The decision could pave the way for rivals to sue Microsoft for breaching E.U. antitrust law. One EU insider said it was possible for European affiliates of Sun Microsystems or RealNetworks, for example, to seek compensation for years of market abuse by Microsoft.

Meanwhile, Monti praised the "constructive and cooperative spirit" and "high degree of professionalism" of Ballmer and his colleagues in their talks.

MICROSOFT APPEAL SEEN
Microsoft spokesman Tom Brookes said the company would almost certainly appeal the decision in the E.U. courts. "We will await the formal decision, but we expect to appeal," he said.

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Canadian ISPs Fight For Privacy

By Paul Resnikoff

BOSTON--Canadian ISPs and civil-liberties groups continue to battle the Canadian Recording Industry Association (CRIA) to protect the identity of file-sharers.

CRIA is trying to force ISPs to disclose member information in a manner similar to what the Recording Industry Assn. of America haddone in the United States.

ISPs in the States eventually resisted that through an appeals decision in late 2003. But Canadian copyright law differs from that of the U.S.

A recent decision by the Copyright Board in Canada ruled file-sharing to be a legal activity, but the CRIA has disregarded that decision, calling it unofficial. The Federal Court of Canada heard arguments last Wednesday.

Paul Resnikoff is the editor of DigitalMusicNews.com

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Dream Makers & Deal Breakers

MTV Names Rowe Public Affairs VP

By Carla Hay

NEW YORK--MTV in New York names Ian V. Rowe VP of public affairs and strategic partnerships. He previously was director of strategy and performance measurement for USA Freedom Corps.

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MGM Home Entertain Promotes Sufrin To Law Exec VP

By Jill Kipnis

LOS ANGELES--MGM Home Entertainment promotes Ron Sufrin to executive VP of business and legal affairs.

He will oversee business and legal affairs for home entertainment, pay-per-view, video-on-demand and consumer products operations.

Sufrin previously was senior VP of business and legal affairs. Before joining MGM, he was VP of business affairs for video at Paramount Pictures.

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Greenberg Traurig Opens 2 New Calif. Offices

By Samantha Chang

NEW YORK--Greenberg Traurig has opened offices in Orange County and Silicon Valley, Calif.

The branches will focus on the practices of intellectual property, litigation, tax, estate planning and executive compensation, corporate and securities, venture fund formation and private equity funds.

The Orange County and Silicon Valley branches complement the firm's Los Angeles office, which houses 70 attorneys.

The OC office has seven attorneys: managing shareholder and tax and estate-planning attorney Gordon Schaller; tax shareholder Jeff Joy; corporate and securities shareholders Steve Anapoell and John Stoner, and litigation shareholder Greg Hurley. Rounding out the OC office are litigation associates Michael Drury and Stacey Jaramillo.

The Silicon Valley office also has seven attorneys, but talks are underway with 10 others who may eventually join the branch, says Cesar Alvarez, president and CEO of Greenberg Traurig.

Forming the group are corporate and securities shareholders Todd Rumberger, Stefan Clulow and Khoa Do; real estate shareholder Randy Single; executive compensation shareholder Tom LaWer; intellectual property shareholder Heather Meeker, and tax shareholder Fred Adam.

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UMG Colombia Names Sossa Managing Director

By Carla Hay

NEW YORK--Universal Music in Bogota, Colombia, promotes Sandra Sossa managing director for its operations in Columbia, Venezuela, Ecuador and Peru. She previously was financial controller.

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Commentary

Legitimizing Bastard Pop

By Keith C. Hauprich, Esq.

After lurking about the British dance scene for the past few years, a trend--once thought to have peaked and faded--may find new life in the United States, thanks to a DJ/producer called Danger Mouse.

"Mash-ups," or "Bastard Pop," involves the cross-pollination of the instrumental or rhythm track of one artist with the vocal track of another. After one track is digitally superimposed on the other, the end product is typically made available over the Internet or on bootleg CDs.

In response to the release of his "Grey Album," which blends the music of The Beatles' "White Album" with the lyrics of Jay-Z's "Black Album," Danger Mouse has received extensive club play, a positive review in New Yorker magazine, a mention in Rolling Stone magazine's editors' favorite albums, singles and videos column and a cease-and-desist letter from EMI Group.

The problem is that due to the availability of music editing software programs and the ease of remixing on one's home computer, this new breed of desktop DJs fails to secure, or even request, the requisite licenses from the appropriate record label or music publisher of each original master and composition underlying their new "mash-up."

While this blatant revolt undermines the tenets of Copyright law, the music industry should embrace this latest fad.

BLURRING THE LINES
Digging trenches and preparing a chess-like strategy for a pitched legal battle may take longer than the duration of this perhaps fleeting trend.

As evidenced by the RIAA's shock-and-awe campaign against P2P users, combating copyright infringers necessitates a slow, deliberate and thorough approach. That said, the results of such a campaign has been about as decisive as the outcome of a Rorschach inkblot test. Trends and fads by their very definition peak and fade at a far more rapid pace.

NOVEL APPROACH
The first authorized remix of an Elvis Presley song, "A Little Less Conversation," by JXL brought Elvis to a new generation of consumers.

From its inclusion in a Nike advertisement to its release as a 12" single, it is unquestionable that this unorthodox remix drove sales of the multi-platinum album, "Elvis: 30 #1 Hits."

In a similar vein, the industry should attempt to ride this latest wave to breathe new life into older catalogs. Think of what a really good cover can due for a lost classic. "Mash-ups" can serve as an outlet to combine that momentum with the buzz that up and coming rap artists have been able to generate through releasing bootlegs and mix tapes.

NEW REVENUE STREAM
"Mash-ups" will not cannibalize current sales. This is not as dramatic as displacing the labels existing means of distribution. This is using the Internet as well as traditional brick and mortar outlets to generate sales through licensed releases.

There is potential here to generate an additional stream of revenue for labels and publishers without revisiting existing business models or balance sheets.

Keith C. Hauprich is the director of business affairs at Cherry Lane Music Publishing Inc. in New York.

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Case Analyses

Vivendi Moves For 2Q Merger Close

By Georg Szalai

NEW YORK--The showdown between Vivendi Universal and Barry Diller is raging, after Vivendi sued a company run by the media mogul.

Diller is trying to delay the planned merger between Vivendi Universal Entertainment unit and NBC, Vivendi Uni alleges in the complaint.

Diller owns a stake in VUE directly, as well as via his Internet juggernaut InterActiveCorp. Ahead of the NBC Universal merger, which Vivendi Uni still expects to close in the second quarter, the company has tried unsuccessfully to negotiate with Diller a potential unwinding of the stake.

To satisfy a closing condition for the merger and a legal obligation to IAC's USANi sub-unit, Vivendi Uni last Wednesday said it recently put up letters of credit backed by U.S. Treasury securities. Such documentation is necessary to back and cover Diller's VUE shares as well as end certain veto or voting rights he has if VUE wants to raise its debt ceilings.

Via USANi, Diller rejected the letters as insufficient, but Vivendi Uni argues that he must accept them based on the contract that created VUE.

Diller's company is arguing that it should be allowed to draw on the letters of credit if Vivendi Uni's market value falls below a certain point, according to a source familiar with the matter.

To this end, Vivendi Uni last week filed a complaint against USANi in the Court of Chancery of the State of Delaware for a declaratory judgment that "certain covenants under the Vivendi Universal Entertainment partnership agreement are [eliminated] upon posting of letters of credit."

Vivendi Uni brass has asked the court to act quickly to allow them to close the NBC deal by the end of the second quarter.

In a statement, NBC said "this is a technical dispute between Vivendi Universal and InterActiveCorp, and NBC is not a party." NBC also reiterated previous comments from NBC brass that "we do not need InterActiveCorp's consent to close the transaction" with VUE.

Sources familiar with the situation say Vivendi Uni and NBC listed Diller's acceptance of letters of credit as a closing condition for their merger, but noted that the companies could change that quickly if the court doesn't rule in Vivendi Uni's favor.

Case: Vivendi Universal v. USANi Sub LLC, a unit of InterActiveCorp.

Georg Szalai is the business editor of The Hollywood Reporter.

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MTV Balks At 'Real World' Labor Issues

By Associated Press

PHILADELPHIA--Real-world labor issues apparently were too much for the producers of a popular MTV reality show.

Bunim/Murray Productions has given up plans to tape the 15th season of its reality-TV show "The Real World" in Philadelphia. Taping had been set to begin in twoweeks.

The production company had angered labor unions by hiring a non-union company to renovate the former Seamen's Church Institute in Old City, where MTV had planned to have seven strangers live together and have their lives videotaped. Members of the building trades unions picketed outside the building.

A Bunim/Murray spokeswoman says: "After considerable evaluation, we are disappointed to announce that Bunim/Murray productions has decided not to shoot 'The Real World' in Philadelphia."

It was unclear whether MTV would choose another city or delay its shooting schedule. A spokeswoman for the New York cable network declined to comment last Wednesday.

"I've got kids looking at me like I killed Santa Claus," Pat Gillespie, president of the Building Trades Council, said last week.

"They come into our town and make a decision to avoid union workers. Whether they were prepared for what would happen, it was a conscious decision that they made," Gillespie stressed.

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Microsoft Employee Claims He Wrote Kazaa

By Associated Press

LOS ANGELES--A native of Romania who claims to have written the source code to the popular file-sharing software Kazaa has sued the distributor over the rights to the software and is seeking $25 million in damages.

In the federal lawsuit, Fabian Toader, who now lives in Redmond, Wash., claims he wrote the computer code for the Kazaa program in 2000 while working in Romania on a freelance basis for Kazaa B.V., which sold the rights to the software in 2002 to Sharman Networks Ltd.

Kazaa Media Desktop, which enables users to connect online over a so-called peer-to-peer network, is used by millions to swap music, movies, software and other files. The practice has drawn the ire of Hollywood film studios, recording companies and other copyright holders.

Toader claims he never signed a contract with Kazaa B.V. and asserts that, under copyright laws in the United States and Romania, he is the copyright owner of the program, and not Sharman Networks.

Toader, now a programmer for Microsoft, seeks a judgment confirming his rights to the program and $25 million in damages.

A spokesman for Sydney, Australia-based Sharman disputed Toader's assertion that he owns the rights to the program.

"The work done by Fabian Toader on early versions of the Kazaa Media Desktop software was done under a work-for-hire agreement that expressly states that Kazaa B.V. owned all rights to any work related to the development of the software," said Rich Chernela, a Sharman spokesman.

The lawsuit, which was filed March 4 in Los Angeles, is only the latest volley of litigation between Toader and Sharman.

In August, Sharman sued Toader in Washington State Superior Court, alleging he tried to blackmail the company. The court granted Sharman an injunction against him.

Toader countersued later that month in federal court in Seattle, then opted to dismiss the case without prejudice in February and refiled it in Los Angeles, according to attorney Marc Fenster.

A federal case brought by the entertainment firms against Sharman in Los Angeles is pending the outcome of a decision by the Ninth U.S. Circuit Court of Appeals on a ruling that cleared two other companies of liability for the unauthorized sharing of files by users of their software.

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'Last Samurai' Writer Sues Producers

By Samantha Chang

NEW YORK--One of the screenwriters of the Warner Bros. 2003 movie "The Last Samurai" is suing the film's producers, alleging they failed to give him and other writers proper writing credits.

Michael Alan Eddy says Interscope Communications hired him in 1992 to write the screenplay for "The Last Samurai." After Eddy wrote the second draft, he says Interscope replaced him with another writer, Garner Simmons. Then, Interscope allegedly brought on a third writer, Robert Schenkkan.

Eddy says the film's producers then failed to submit to the Writers Guild of America the names of the first three writers on the project, as required under WGA guidelines.

Eddy says that the WGA's credit process violates a Ninth Circuit ruling in Jacobs v. CBS Productions (2002), where the court held that the WGA's credit arbitration procedures are "patently unreasonable and indefensible."

"The 'little-guy' writer is no longer protected by the WGA, but instead must protect himself or herself from the WGA and be constantly vigilant for traps laid by its staff, one hell-bent on power, self preservation and avoiding accountability, and a Board that operates in secret as if a politburo from the Cold War era," Eddy alleges in the complaint.

Case: Michael Alan Eddy v. Radar Pictures, Interscope Communications, Warner Bros. Pictures, Bedford Falls Co., Edward Zwick, Marshall Herskovitz and Writer's Guild of America, West Inc.

Cite: USCD California CV04-0013

Plaintiff's attorneys: Neville L. Johnson, Brian A. Rishwain and James T. Ryan of Johnson & Rishwain LLP in Los Angeles.

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