In its second-largest acquisition, Amazon buys the company for $970 million.
Leading music labels try to make the online subscription model work.
Music’s advancement on the Internet took a major turn early in April when three major record companies joined forces with online audio software giant RealNetworks to form MusicNet, a subscription-based infrastructure that organizers plan to license to other music services such as Napster.
AOL Time Warner Inc., Bertelsmann AG, EMI Group plc and RealNetworks’s MusicNet platform, which will operate as a stand-alone company, will accelerate the rollout of online music subscription services multiple distribution networks, including RealNetworks and America Online. MusicNet’s goal is to distribute music profitably to as many outlets as possible.
Under the agreement, the four partners will each own a minority stake in MusicNet. The companies’ music subsidiaries-EMI Recorded Music, BMG Entertainment and Warner Music Group-will license their music catalogues to MusicNet on a non-exclusive basis. RealNetworks will provide its popular RealPlayer audio software to handle distribution. The music companies involved represent more than 40% of popular music, including such artists as Dave Matthews Band, Faith Hill, Madonna and Eric Clapton.
MusicNet will seek to license music from other record labels. Each record company intends to pursue other distribution deals for online music. Bertelsmann earlier pulled out of a lawsuit against the Napster file swapping service in exchange for helping Napster develop a subscription-based service that would satisfy copyright concerns raised by recording artists.
The deal is the first to address the issue of legally distributing digital music. “This is the first of many partnerships,” says Idil Cakim, director of media strategies at Cyber Dialogue.
She says the non-exclusivity clauses will be important to allow consumers to use different digital audio technology to download music. According to New York-based Cyber Dialogue, RealPlayer is the most popular software, followed by MP3 and Microsoft Media Player. “Major record companies are trying to find alternative distribution channels,” she says. “They’ve had to rely on record store brands and artist names to sell their music but with the Internet they must find a way to deal with the consumer face to face. Subscription-based services online are a move in the right direction.”
While these types of subscription deals seek to legitimize the distribution of music over the Internet, they are not harming record stores yet. Cyber Dialogue’s industry brief on Monetizing Digital Music reports that 42% of music downloaders purchase more music as a result. And only 1.5 million consumers have purchased digital albums versus the 80.5 million consumers who listen to music online.
Cakim says 40% of consumers surveyed by Cyber Dialogue show an interest in paying for such a service. “However, we will have to see if consumers will agree to the price points,” Cakim says. MusicNet has not said how much consumers would pay.