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RealTime IT News

RealNetworks Grabs Listen.com Stake

In a deal that signals the beginning of consolidation in the digital music subscription space, RealNetworks has acquired a minority stake in rival Listen.com, prompting speculation that a complete buyout is coming down the pike.

Financial terms of the transaction, believed to be a cash-for-equity swap, were not released but Listen.com said the RealNetworks investment would be used to expand the Rhapsody paid download service, which competes with RealNetworks-backed MusicNet.

The deal calls for Real's digital media technology to be the primary platform for the Rhapsody service. The two sides plan to "explore collaborating on future services," a hint that the struggling Listen.com could be an acquisition target for the Seattle-based RealNetworks.

Officials at both companies could not be reached for comment.

The privately-held Listen.com is backed by August Capital. The five major record labels -- Bertelsmann AG, EMI Recorded Music, Sony Music Entertainment, Warner Music Group and Universal Music Group -- all have minority investments in Listen.com, which was acquired in exchange for licenses to offer copyright music for download.

Before this investment, Rhapsody's service was powered by technology from Microsoft , making the investment a strategic move by Real poach a key brand for its open-source Helix platform. Rhapsody will continue to support Windows Media as a secondary platform.

"We're excited about the continued adoption of our technology platform by digital media content providers and the opportunities to expand the consumer's access to media beyond the PC," Richard Wolpert, an executive at RealNetworks, said in a statement. "This investment signifies our belief in the promise of a legitimate market for digital music."

The San Francisco, Calif.-based Listen.com, has struggled to land enough subscribers for its music service and slashed the price of its download-and-burn option.

In addition to a standalone subscription service, Rhapsody is co-branded with third-party resellers that include broadband firm SpeakEasy and classical music label Naxos. Listen.com was the first digital music service to win the full backing of the big five music labels but, since it tweaked pricing and upgraded last May, the market for paid music has become more crowded.

Earlier this week, America Online finally launched a new version of its MusicNet on AOL service with a major concession on CD-burning. Microsoft/Yahoo-backed Pressplay has also changed its pricing policy in recent times to allow unlimited listening and CD-burning capabilities.

Roxio is also about to enter the market with a legitimate reincarnation of Napster.