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Sunncomm gets a nod and a wink from Universal

DRM, short-sellers and Shazam

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DRM software maker SunnComm has signed another major music label up as a customer - sort of.

SunnComm last week touted its new deal with Universal Music Group (UMG). The agreement, however, would carry a bit more weight, if announced in less apprehensive tone.

"The world's largest music company may choose at some point to elect the use of [SunnComm's] MediaMax technology," SunnComm said. "SunnComm will receive a royalty from UMG should the company decide to use the technology. MediaMax is one of several technologies currently under review by UMG."

That's hardly the ringing endorsement that some SunnComm watchers had been looking for. The company has been under pressure to sign up another large customer alongside BMG. UMG did not return numerous calls seeking comment about how extensively it planned to use the SunnComm software.

SunnComm is best known, much to its dismay, for having an early version of its DRM software break when a Princeton University student held down his PC's Shift key while inserting a 'protected' music CD. The company threatened to sue the student for violating the Digital Millennium Copyright Act (DMCA) but then backed down from this attack.

Since that embarrassing episode, SunnComm has enjoyed a successful run. Its digital rights management software has been used by 25 record labels and is currently controlling 10m CDs out in the wild.

Sold short?

SunnComm, however, continues to be followed by the odd episodes that have dominated its history. For example, two days before it announced the deal with UMG, SunnComm appeared on a new Nasdaq list of companies that failed to have a certain number of share transactions complete in a set period of time. SunnComm attributed its inclusion on this list to abuse by short-sellers.

"I feel that our company's inclusion on this Threshold Security List supports our contention that there have been substantial naked short positions that may have caused failed deliveries of SunnComm shares resulting in a substantial dilutive effect on shareholder equity," said SunnComm's CEO, Peter Jacobs. "It is unfortunate that a company like ours, with so many accomplishments and that has worked so hard to successfully penetrate the lucrative US music business, has had its value negatively impacted by these activities."

Then, one day before the UMG deal was announced, SunnComm was profiled by Shazamstocks.com in a pseudo research report. Shazamstocks, run by former UBS Paine Webber broker Ken Weiner, received $87,000 from a "third party" for its glowing report on SunnComm. Weiner did not return a call asking who this third party was.

Weiner has received substantial payments from companies looking to be profiled on his stock picking site. The site advises investors that they can enjoy large gains simply by benefitting from Shazam's membership all chasing the same stock.

"Our paid membership grows eveyday [sic]," the site says. "Our picks get a nice kick just from buying from our membership. 72 hours later the pick goes out to our free list. Our free list is huge and growing every day. If you like to buy low and sell high, then the paid membership is for you."

However, in the profile section where SunnComm was included, Shazam warns, "we are not stockbrokers or investment advisors. We are neither licensed nor qualified to provide investment advice".

SunnComm, while seeming to get ever closer to the big labels, continues to be hounded by bizarre business deals. It is, however, one of the largest independent DRM makers and a dominant player in the US market. ®

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