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RealNetworks Flings Open Floodgates for Online Music Mergers, Deals

What has RealNetworks Inc. started?

The digital distribution company kicked off the week by announcing an online music subscription service in conjunction with AOL Time Warner, Bertelsmann AG and Emi Group Monday. That was hot enough news in an industry determined to snuff the flames of the Napster vs. recording industry conflagration, but it apparently has paved the way for other major firms either inking similar music deals, or hashing out acquisitions.

Perhaps most salient (and relative) among these is Yahoo! Inc.'s announcement Thursday that it would work with Duet, a joint venture by Vivendi Universal and Japan's Sony Music Entertainment, to co-market an on-demand music subscription service.

What is interesting to note here is the timing of the announcement. When RealNetworks CEO Rob Glaser was regaling the public with tales of his sweeping MusicNet initiative Monday, he was asked if Universal and Sony, the remaining two music companies, were invited to join. Glaser demurred, saying folks were invited to join and that it is only logical "to assume that we talked to all five."

Er... is that a yes?

Although it is clear Glaser offhandedly said he did invite them, it is crystal that the other two giants said no thank you for the time being. Universal and Sony have pulled a Fleetwood Mac and vowed to go their own way, taking Yahoo! with them. Like MusicNet, which is a standalone company, Duet does not wish to freeze anyone out.

"We hope that other major music companies and independent music companies will join Duet," said Jean-Marie Messier, Chairman and CEO, Vivendi Universal.

Just who they are, however, is unclear right now, as are most details about Yahoo! and Duet's schema.

In a conference call Thursday, Messier, along with executives at Yahoo! and Sony, were asked repeatedly to supply specifics about the technological aspects (who would they turn to, etc.) and subscription models (pay-as-you-go, monthly, etc.), for the venture. The crux of their responses is that they will announce partnerships as they are penned, and reveal any fees with the rollout of the service. They also confirmed that, like RealNetworks' MusicNet, Duet would not rule out deals with Napster.

The whole pot is sweetened by the fact that the RealNetworks and Yahoo! deals have nicely couched a Senate meeting that passed with little accomplishment Tuesday in Washington, D.C., where Napster suggested the committee think about instituting a compulsory license policy for online music, a plea that was met with disgust by the Recording Industry Association of America and their corresponding plaintiffs.

As for the particulars of the Yahoo!/Duet deal, which the firms said would begin with streaming music provisions and expand to downloads in the future, the Duet subscription service will offer consumers the opportunity to access a broad range of music online "while respecting artists' rights," which with every utterance since RealNetworks harped on that fact would seem to drive another nail into the coffin awaiting Napster.

Slated to begin this summer, music lovers would be able to create personalized playlists and share them with other Duet members. As with the RealNetworks deal with the other 3, Duet will offer music from Sony Music and Universal Music on a non-exclusive basis.

But there are other deals afoot this week.

On the heels of that important, but not-all-too surprising deal, MTVi also said it was going to offer music downloads for a fee, pooling tunes from the Big 5. And on Wednesday, Microsoft trumpeted a radio-like service called MSN Music to deliver music over the Web. The new service will include several genres of music, but will prevent copying or listening to a specific song.

Then there are the acquisitions. No confirmation on exactly who it will be yet, but the whisper among the willows is that the larger half of the Yahoo!/Universal duo will consume EMusic, an online service that allows consumers to download songs found on independent labels. EMusic confirmed Thursday that it is in talks to be acquired for the proposed acquisition price of 57 cents per share for its stock. Then there is Listen.com, which formally announced its intentions to scoop up streaming media extraordinaire TuneTo.com Thursday.

Will They Pay to Play, or Just Plain Go Away?

People may ask how the idea of making people pay for content will work given the fact that it has its provenance in the sacred realm of free. Yankee Group analyst Steve Vonder Haar said the reasons for the appeal to subscription-based models is quite simple; the dearth in online advertising spending.

"In today's Web content business, necessity is becoming the mother of subscriptions," Vonder Haar said in a recent Internet market strategy study. "As the online advertising market stagnates, more content publishers are experimenting with subscription models in pursuit of sustainable business models."

Vonder Haar went on to describe last week's deal between MLB.com and (surprise!) RealNetworks in which the professional baseball league set forth on a three-year, $20 million contract with Real Networks to sell subscriptions to audio Webcasts of the league's games. The baseball subscription deal follows forays into online subscriptions launched on March 20 by Salon.com and Variety.com, according to the analyst.

So if it works for baseball broadcasts or snarky, quasi-literary content, then it should work for music, which for people of different walks of life can be the universal glue that binds, no? Not necessarily. Just because quality content is offered that does not mean listeners will stay loyal to the sites that suddenly want them to cough up the dough.

Vonder Haar cited the MLB.com/RealNetworks deal as an example.

"Major League Baseball may find some early success given its well known consumer brand name and the relative novelty of its audio offerings, but the online audio broadcast experience and subscription model pales in comparison to the baseball game telecasts widely available on broadcast, cable and satellite television," Vonder Haar said. "Just because content publishers now need to sell subscriptions in a down advertising market, it does not automatically follow that consumers will be buying."

There you have it. Well, one view point, anyway. As for pay-for-play music nothing massive looms in the way -- unless you count the still-free Gnutellas and FreeNets of the world.

Music Mergers Made Real

Long a champion for music subscription services to compensate record labels and artists, EMusic has been the golden boy model and the almost savior-like company lawyers and industry insiders turned to when assailing Napster.

Yes, EMusic has positioned itself as the anti-Napster. It may have weathered some layoffs and management departures, but it also launched an MP3 subscription service last July, launched a "fingerprints" solution in November to prevent the illegal distribution of EMusic songs using the Napster service., subsequently sued Napster for that very infringement and gave away free MP3 files a few weeks ago to Napster fans, and thus showed Napster up.

But EMusic is just as susceptible to the depressed market as everyone else and it has a solid business model going forward. Accordingly, EMusic is in good position to join Universal if that is what is finally agreed upon; the giant music company could convert EMusic into a Web site where people can download songs from Duet. That and the fact that it is consistent with analysts views that the over saturated online music would see a serious shakeout and consolidation.

Which leads our attention to Listen.com, a successful online music company that has banked on the idea of Internet radio as being the dominant platform on which music services and devices would be built. Snapping up TuneTo.com will help it do just that, it believes; allow Listen.com to go bolster its streaming services and team of media delivery experts.

Listen.com CEO and founder Rob Reid said his company plans to deploy TuneTo's technology into new applications like music-on-demand subscription services and wireless and Net-attached devices.

Terms of that deal were not made public.



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