RealNetworks Grabs Stake

In a deal that signals the beginning of consolidation in the digital music
subscription space, RealNetworks has acquired a minority
stake in rival, 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 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
could be an acquisition target for the Seattle-based RealNetworks.

Officials at both companies could not be reached for comment.

The privately-held 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, 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, 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. 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
and CD-burning capabilities.

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

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