RealNetworks Inc. plans to launch a platform for online music subscription services in conjunction with three of the big five music labels, the companies announced Monday.
MusicNet will combine the music assets of Bertelsmann, EMI and AOL Time Warner. The companies' music subsidiaries - EMI Recorded Music, BMG Entertainment, and Warner Brothers Music Group - will each license their music to MusicNet on a nonexclusive basis while RealNetworks will provide the online music delivery technology. AOL will also tie the new company into its existing portfolio of online brands, which include the music sites WinAmp and Spinner.
MusicNet will operate as an independent company, with each of the four companies involved owning a minority stake. The new company will also seek to license music from other record companies, both independents and the two remaining major labels -- Sony Music Entertainment and Universal Music Group.
Rob Glaser, chairman and CEO of RealNetworks, will be the interim chairman and CEO of MusicNet as well. The companies chose a CEO from outside the labels for MusicNet to avert a potential antitrust inquiry that could result from having a distribution venture that combines three of the five largest music labels, said PJ McNealy, a senior analyst high-tech research firm Gartner Group.
"EMI and Sony couldn't talk in the same room as a Universal guy without an antitrust lawyer in the room," McNealy said.
Glaser dismissed antitrust concerns in a conference call Monday afternoon. "One of the core participants in this has been Joel Klein," he said, referring to the Clinton administration antitrust prosecutor who pursued the government's case against Microsoft Klein now heads Bertelsmann's US operations.
"I think all of the participants have made it clear that there's nothing exclusive," in the agreements, permitting all parties involved to make additional distribution deals, Glaser said.
He also refuted the claim that the announcement was purposely timed one day before Senate hearings into online music, where music executives are expected to be grilled on their strategy for online music distribution.
"This is not just a fig leaf sort of thing," he said. "This is the real deal."
Few hard details came out of the conference call, however. No date was announced for the business-to-business service to begin. No model for subscriptions was announced. No model for distribution was announced, beyond Glaser noting that it will be business-to-business and not business-to-consumer, and that it will support both streaming audio and downloads.
MusicNet also plans to license its platform to other online music distributors, such as Napster, "provided such outlets satisfy legal, copyright and security concerns," Glaser said.
"I think it's pretty cool. It's a good example of online music distribution done the right way," said Ryan Jones, a music analyst from the Yankee Group market-research firm. The music labels have been criticized in the past for fighting hard against Napster while taking long to offer an alternative.
"Napster can't do anything legitimate and can't make any money right now," Jones said. "It's hard to say it's too little too late when no one is doing it right now ... this seems to have all the pieces."
BMG and renegade peer-to-peer music service Napster formed an alliance in October to develop a paid subscription membership service. BMG said then that once Napster implements the service, BMG would withdraw its lawsuit against Napster and make its music catalog available, loaning the company money in the meantime.
Bertelsmann dealing with other labels to develop a new distribution service casts some doubt on its commitment to Napster, Jones said. To say that Bertelsmann is writing off Napster may be going too far, but "I think it's a thought that people should consider. Their (Napster's) user base has dropped off 25 per cent since the court decision. They're a public relations nightmare now because they can't get their filtering software right."
Gartner's McNealy added that Bertelsmann's investment in Napster could have simply been a hedge against a potential court victory. With the music swapping service in decline, Bertelsmann may simply be making good on earlier statements to pursue multiple avenues for online music. "Right now it has only cost them a loan of $50 million." Even if they lose their Napster investment, "for a company like Bertelsmann, $50 million is a tax-write off."
In January, BMG said Napster would launch a paid subscription service later this year. Universal and Sony announced in February that they are working on their own subscription service, currently code-named "Duet".