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

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, which formally announced its
intentions to scoop up streaming media extraordinaire 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

Vonder Haar went on to describe last week’s deal between 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 and, 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 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, 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
will help it do just that, it believes; allow to go bolster its
streaming services and team of media delivery experts. 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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