Web, music giants march to different tunes

The deal, announced Thursday, allows Microsoft to offer Pressplay's online music-subscription service on its MSN Music Web site. In addition, Pressplay will use Microsoft's Windows Media technology to offer music to MSN Music customers.

Because Pressplay is backed by some record companies and Microsoft is in a pitched battle with RealNetworks, the move draws a distinct line between rivals in the Internet and recording industries.

"It's a crying shame that the Microsoft-RealNetworks rift has spilled over to the major labels," said Aram Sinnreich, an analyst at Jupiter Media Metrix. "The end result is that it will be a longer time before consumers will have access to a music-subscription service that offers them enough music."

Pressplay is a joint venture between Vivendi Universal, which owns Universal Music Group, and Sony, which has its own major label. Pressplay also has a distribution agreement with Yahoo that is similar to MSN.

On the other side, there's MusicNet, a rival online music-subscription service. MusicNet is operated by Microsoft's bitter tech rivals, RealNetworks and AOL Time Warner, along with Bertelsmann's BMG Entertainment and EMI Recorded Music. MusicNet has also agreed to license its subscription service to Napster, which has a financial relationship with Bertelsmann.

The division aligns the record industry along political lines between Microsoft and RealNetworks. The two companies have continually engaged in a bitter war over dominance of online media technologies.

Microsoft has tied its Windows Media Player into its upcoming version of Windows XP and has courted content providers aggressively to use its Windows Media format to allow people to stream or download songs. RealNetworks has the largest share of media player users and is pushing to turn its technology into a standard music-delivery format.

Whatever the powerful names behind the subscription services, many in the industry remain skeptical that they will resonate with consumers used to getting free, wholly unrestricted music from Napster and its rivals.

"I'm tremendously skeptical," said MP3.com CEO Michael Robertson. "The fact that you'll have only a slice of music, and you'll have to (use it at) your PC--I don't see the value in that."

Putting music on a pedestal
Internet and recording giants have put considerable emphasis on developing music services that offer a wide swath of songs for a set fee.

The brief lifespan of Napster sparked a frenzy among consumers who used the service to download virtually any song that came to mind. Now that a federal judge has ordered Napster to filter its service of all copyrighted material, the company remains a shell of its former self while it prepares to launch a paid service.

In contrast, the music labels and their Internet partners are busy creating comprehensive online music services that respect copyright holders. But these major players are not interested in working with each other--and that could create a balkanized market that consumers find confusing.

In the case of Microsoft, the company said it is not in discussions to license MusicNet, which is 40 percent-owned by RealNetworks. Microsoft and RealNetworks are fighting over dominance in anti-piracy technology, which would limit distribution of downloaded content such as songs and films. The winner could become the de facto standard in controlling how creative content is distributed on the Internet.

Because of the competitive realities, it's unlikely Microsoft will work closely with MusicNet, and vice versa.

"We have been talking to all of the major labels and are continuing to do that," said Sarah Lefko, MSN product manager. "We currently are not talking to MusicNet but are talking to other labels."

Napster has licensed the MusicNet service for its pending relaunch, but a source close to the company said contractual obligations prevent Napster from turning around and licensing the content to MSN and others.

Nevertheless, the formation of the MusicNet alliance has been viewed as a coup for RealNetworks, because the service's technology will be largely based on its own media formats.

Microsoft has warmed up to many content producers in its quest to gain market share for Windows Media. Some of the friendships made along the way have included some of the major record labels, which have bristled at RealNetworks' moves to exclude Microsoft's technology from its service.

Portal wars...again
Microsoft does not host any content on MSN that is encoded in RealNetworks' technology despite its willingness to push its own technology onto RealNetworks' partners.

Microsoft also needs to offer music to boost the media side of its business, namely its MSN portal. Ranked as one of the most-visited sites on the Web, MSN competes with America Online and Yahoo in luring Web visitors.

Despite the fallout of other portals, such as Disney's Go.com, NBC's NBCi and CMGI's AltaVista, the remaining portal leaders have targeted music as a way to differentiate themselves from their competitors.

"We definitely think music will be a very important component of the portal wars over next few years," said Eric Scheirer, an analyst at Forrester Research.

Yahoo, which has an agreement with Pressplay, has highlighted music as a key component in its turnaround plan. The company recently announced it would acquire Launch Media, which produces a Web site that offers music videos and music-related editorial.

Yahoo, which has suffered drastic revenue cuts from the collapse in the online advertising market, has made it a priority to develop more paid services on its site. Music has been touted as one of them.

Meanwhile, MusicNet has already licensed its subscription service to AOL's flagship online service and RealNetworks, both of which will sell the service to their subscribers and customers.

Whether or not the consumer gets the full benefit in the end remains the most important question. So far, it seems unlikely the major labels and the Internet elite are close to solving this issue while differences remain.

Jupiter Media Metrix's Sinnreich expressed pessimism that the consumer will get any benefit from the line being drawn.

"What we'll probably see in the short term before the labels resolve their stupid differences is a klugey approach where a third-party (company) becomes a systems integrator," he said. "It's painful to watch because everyone's shooting themselves in the foot."