MusicNet on AOL Makes CD Burning Concession

The buzz around digital music got louder Wednesday with the launch of
‘MusicNet on AOL,’ a paid subscription service that will allow users to
listen, download and burn music files for between $4 and $18 a month.

One day after Roxio released plans for
a legitimate reincarnation of Napster, AOL rolled out its
first premium music subscription service to hawk access to a quarter million
songs from all five major music labels.

AOL first unveiled a
standalone beta version of MusicNet in December 2001. That service did not
allow CD burning and never quite took off, forcing AOL to tweak and
customized the service in the face of similar concessions from rivals
Pressplay and Listen.com’s Rhapsody.

The biggest concession from MusicNet, which is jointly owned by AOL,
RealNetworks , Bertelsmann AG, EMI Group and Warner
Music, is the ability of subscribers to burn files onto CDs. MusicNet on
AOL is also pushing the envelope in the area of pricing, offering
subscription packages that are slightly lower than those offered by
competitors.

The plan now is to charge $17.95 per month for unlimited listening and
the right to copy 10 songs onto a CD. MusicNet on AOL will also sell a $3.95
per month alternative that lets subscribers listen to 20 songs a month and
download 20 to a PC.

Another interesting option is an $8.95/month plan that allows unlimited
downloads. Those downloads automatically expire if the subscriptions
aren’t renewed.

In the long run, the company said it would push out a la carte plans to
sell songs for less than $1 and allow CD burning.

AOL is using technology from Marin County, Calif.-based Sonic Solutions
to power its CD-burning offering. Sonic’s AuthorScript
SDK is an engine used for DVD and VCD formatting and burning. Financial
terms of that partnership were not released.

In addition to the huge costs to license music from the music labels, the
biggest challenge for AOL is to convince its own subscribers of the value of
the service. The MusicNet on AOL service would essentially be an add-on to
the $24-a-month subscription fee for Internet connectivity and many believe
it will be a tough sell for the struggling company.

Then, of course, there is the matter of free alternatives for fans
looking for digital music online. Peer-to-peer file sharing services like
Kazaa, Morpheus and Blubster offer platforms for the downloading of millions
of copyright-protected files and analysts believe this is the biggest hurdle
facing the legitimate services.

Combined, MusicNet and Pressplay have barely signed up about 500,000
subscribers for their respective services (MusicNet is available on
RealNetworks’ RealOne service) while Sharman Networks-owned Kazaa boasts in
excess of 60 million users.

Despite the proliferation of free alternatives, Jupiter Research digital
music analyst Lee Black believes the paid download space remains hot.
“There’s a lot of energy around music subscription services,” he told
internetnews.com, noting that the rogue file-sharing platforms have
problems of their own.

Destructive virus writers have targeted the peer-to-peer services for
distribution of worms and the fact that many music files are badly labeled
and of poor quality have scared off many consumers and opened the door for
legitimate services to make money.

Another big headache, according to Black, is the prohibitive cost to
acquire the licenses from the music labels. “The business model gets
destroyed by trying to buy the content. Only five players — the labels —
control the pricing and they are able to set the prices very high,” he
explained.

On average, the labels ask for about 50 cents on a download that’s sold
for 99 cents and, when overheads and bandwidth costs are calculated, the
music services end up making next to nothing. “The price they have to pay to
get the licenses from the major labels is steep. It would be interesting to
know if the music services have to give up equity or put up a retainer fee
to acquire these rights,” Black said.

For AOL, which has financial trouble of its own, digital music has become
a key area for growth. The company’s music offerings the AOL Music Channel;
online radio products [email protected] and Spinner; and the Winamp media player.
AOL Music also provides music programming, products and services throughout
the AOL Service, AOL High-Speed Broadband, and AOL’s family of Web brands,
including Netscape, CompuServe, AIM and ICQ.

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