RealNetworks, Microsoft to get into online music
San Jose Mercury News
Posted at 7:32 p.m. PST Friday, March 30, 2001
RealNetworks, Microsoft to get into online music
BY DAWN C. CHMIELEWSKI AND KRISTI HEIM
Mercury News
Two digital media giants appear poised to announce major forays into the online music business as the issue of digital music heats up on Capitol Hill.
RealNetworks and Microsoft are in a race to develop online music
subscription services to compete with Napster, the popular file-
sharing service that attracted millions of users by offering a way to download songs for free.
MSN, Microsoft's network of Web sites, is set to announce its first online music service next week. If it follows the model Microsoft has outlined for its new Web services strategy, the service is likely to include a basic free service plus optional fee-based content.
Seattle-based RealNetworks is negotiating with three major record labels -- AOL Time Warner, Bertelsmann AG and EMI Group -- for rights to distribute their music through a subscription service, the Wall Street Journal reported Friday.
The timing is impeccable for the record labels, which face
potentially tough questions from Senate Judiciary Committee Chairman Orrin Hatch, R-Utah. Tuesday, Hatch will hold a hearing on Internet music distribution. Last summer, Hatch warned the industry to set "fair and reasonable" licensing rates to allow music to be swapped over the Internet -- or face new laws requiring forced licensing.
"It appears as if the music industry will want to point to this deal with RealNetworks as a genuine indication of licensing for digital use," said Ric Dube, a digital media analyst for Webnoize in Cambridge, Mass.
Neither RealNetworks nor the record companies would comment on
possible talks or the timing of a possible agreement.
Any such deal would legitimize online music distribution, which up until now the industry has equated with shoplifting. The industry appears ready to change its tune and embrace the notion of Internet distribution beyond its own small-scale trials.
"As Victor Hugo put it, `You can defend against invasion by an army, but there is no defense against invasion by an idea,"' said Phil Leigh, digital media analyst for Raymond James & Associates.
Microsoft, meanwhile last September bought Los Angeles-based Internet start-up MongoMusic, a technology that makes music recommendations based on listeners preferences.
"We've had strong relationships with the major record labels," said Michael Aldridge, lead product manager in the Windows Digital Media Division. "We've been working closely with them for well over two years."
Microsoft is also working on so-called superdistribution, which
allows people to legally share music or video over the Internet while letting the content owner define the terms of use. CenterSpan Communications for example, is relaunching the Napster-like Scour Exchange this week using Microsoft's technology, Aldridge said.
"In the Post Napster-era companies are looking to our technology as an answer to deliver content in an easy way while still respecting the rights of copyright holders," he said.
RealNetworks's possible alliance with Warner, BMG and EMI, through its MusicNet service would give consumers access to about 40 percent of the current album tracks, according to SoundScan. And it would build on RealNetworks expertise in digital music delivery. Its pioneering RealPlayer software has been downloaded 190 million times.
Any possible RealNetworks subscription service is but one of several the industry is considering, as record labels try to walk a fine line between matching Napster's chief appeal -- its breadth of content -- without running afoul of federal anti-collusion laws.
"The thing everybody agrees on is -- in order for one of these things to be compelling, it's got to have everybody's content," said one record label executive, noting multiple deals are in the works.
Sony Music Entertainment and Universal Music Group plan to jointly launch a subscription service code-named Duet. And America Online is developing its own music, leveraging the Warner Music assets it acquired along with Time Warner.
Indeed, the industry is holding quiet negotiations with Napster, even as it publicly the Redwood City company's $1 billion settlement offer and pursues a copyright infringement case in federal district court, industry sources say.
While RealNetworks and Microsoft may never emerge as the dominant distributors of music over the Internet, their movement into digital entertainment is nonetheless significant.
"It validates the market," said Talal Shamoon, senior vice president of media at InterTrust, a Santa Clara company whose digital rights management technology would be central to any pay music service.
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