RealNetworks joins record labels in subscription service

Tuesday, April 3rd 2001, 12:00 am

By: News On 6

SAN JOSE, Calif. (AP) _ RealNetworks, maker of a popular Internet music and video player, is joining with three record label owners to form what the companies call the biggest online song subscription service to be licensed by the recording industry.

The announcement Monday came on the eve of a Senate Judiciary Committee hearing on the future of digital music.

But the service raised several key questions _ such as what it will cost consumers, how it will maintain security and how it may affect Napster, the little company that forever changed how the recording industry sees the Internet.

The venture between Seattle-based RealNetworks and record label owners AOL Time Warner, Bertelsmann AG and EMI Group is called MusicNet and is scheduled to be available this year. It will let music fans listen to and download songs over the Internet for a fee.

``The labels have finally made some progress in getting their music legally to the very hungry online consumer,'' said Dannielle Romano, an associate analyst at Jupiter Research.

Recording executives said they finally figured out an online distribution solution that could be commercially viable and ensure their copyrights.

``There is this notion that somehow the music companies won't play or don't want to license'' music for online distribution, said Dick Parsons, co-chief operating officer of AOL Time Warner. ``What we were waiting for was someone who would make music available in an appropriate way over the Internet.''

Other music download services, most notably Napster, have come under fire for allowing free downloads of songs for which they don't own the copyrights. After being sued last year by the recording industry, Napster is under a federal injunction limiting what it may offer on its Web site.

Napster also is expected to move to a subscription-based model, possibly by this summer. Bertelsmann has allied itself with Napster by lending it money and technical expertise. Joel Klein, chief executive officer of Bertelsmann's U.S.-based arm, Bertelsmann Inc., said MusicNet would seek a distribution partnership with Napster when that company achieves certain legal and security measures.

``Obviously Napster is a very important consumer network,'' Klein said.

Napster's chief, Hank Barry, issued a brief statement: ``We read the announcement with interest and we look forward to learning more about MusicNet.''

In the deal announced Monday, RealNetworks will own 40 percent of MusicNet and each of the record labels, 20 percent. Each label will license music to MusicNet on a non-exclusive basis, and RealNetworks will provide the technology for the service.

MusicNet, which will run as its own company, initially will license its platform to America Online and RealNetworks for the subscription-based online music services each is launching this year.

Eventually, the goal of MusicNet is to partner with other record labels and subscription-based distributors _ including Napster _ to provide virtually all music over the Internet.

``We really think of it as a very nice start, but clearly our goal is to expand out from here,'' said RealNetworks' chairman and CEO Rob Glaser, who also will be chairman and interim CEO of MusicNet.

MusicNet could face competition from Duet, a partnership between Sony Corp. and French media conglomerate Vivendi Universal that promises to have tens of thousands of songs on the Internet for subscription-based download by this summer.

Analysts said that for either MusicNet or Duet to work, the labels involved in both projects probably will have to agree to license music to each other, giving all customers the broadest music choices possible.

Such broad licensing deals might be necessary to satisfy members of the Senate Judiciary Committee who have indicated they want digital music to be accessible on many online platforms, and not just through one industry-branded channel, said Lee Black, director of research at Cambridge, Mass.-based Webnoize Inc.

``Overall, we think it's a pretty good move and a pretty good deal,'' Black said. ``It's the start of things to come.''

Digital media analyst Phil Leigh said MusicNet's success would depend on whether the project would be consumer-friendly and easily let people transfer songs from MusicNet to portable devices like MP3 players.