e.Digital Corporation (fka EDIG)

[Tinroad]

It's the Technology, Stupid
By Kristi Essick - Paris Bureau Chief
May 21 2001 11:41 AM PDT
http://www.thestandard.com/article/0,1902,24647,00.html

Vivendi Universal wants MP3.com in part because the deal would give its Duet service the muscle to compete against MusicNet.

Vivendi Universal's planned $372 million acquisition of MP3.com isn't just about wresting control of a former enemy. It's about catching up to a new one.
On Sunday, Vivendi Universal agreed to acquire MP3.com, an online music site launched in 1997 that the French conglomerate had previously sued for copyright infringement.

One main reason for the deal is that Duet, Vivendi Universal's joint-venture subscription service with Sony, was desperate to catch up with its rival MusicNet. Vivendi Universal might have been worried that the online subscription platform jointly owned by major labels BMG, Warner and EMI and streaming technology giant RealNetworks had a technological lead over Duet. By buying MP3.com, Duet gets instant access to a proven online distribution technology.

"They needed to catch up with MusicNet," said Rebecca Ulph, an analyst with Forrester Research. A competitor backed by three major labels plus RealNetworks was "threatening" to Duet, she said. Backed by just two labels, Duet also was faced with developing its own distribution technology in-house. MP3.com's technology includes patented technology for music distribution, as well as comprehensive data management and tracking systems.

Neither Duet nor MusicNet is set to launch until this summer though both have licensed their platforms to big-name distributors. MusicNet will team up with Warner's parent company AOL, while Duet has already signed up Yahoo as a distribution partner.

However, the fact that MusicNet gave its first public preview of the service last week at a congressional hearing might have pushed Vivendi to act quickly on the MP3.com deal, said Mark Mulligan, an analyst at Jupiter MMXI.

"It would seem no coincidence at all that the deal was announced right after details of MusicNet were announced at the Senate hearing," he said. "This portrays the real agenda behind the sale."

Duet was far behind MusicNet in terms of its technological platform, Mulligan added, and Vivendi Universal might have recognized that when RealNetworks demonstrated MusicNet last Friday. "[Vivendi Universal and Sony] realized that MusicNet was sophisticated and far down the development road," Mulligan added.

But a Vivendi Universal spokesman said the company had been in talks with MP3.com "for some time." He said the MP3.com platform will form the technological base for Duet but that that is not the only reason Vivendi Universal was interested in the company. "The brand and audience reach is also important," he said.

To be sure, MP3.com comes with a dedicated client base and global brand. But that is likely the less important aspect of the acquisition.

"Buying MP3.com gives [Vivendi Universal] the technology; it has nothing to do with the client base," Mulligan said.

The deal gives Duet access to 40 million online music users, but whether MP3.com users – mainly interested in independent music – will want to become paying subscribers of a the Duet service is still unclear. Indeed, both Duet and MusicNet have said they'll focus more on licensing their subscription services to third-party distributors than on building up their own consumer subscriber bases.

In fact, the rivalry between Duet and MusicNet might be short lived. If either service is to attract a large number of paying subscribers, it would have to offer music from all labels – not just the ones that back the service, said Ulph. Plus, the real battle in the future will be between record labels and Internet users who are accustomed to getting music on the Internet for free.

"[MusicNet and Duet] will eventually have to license each other's platforms because they realize the best way for labels to win is to work in conjunction with each other," she said. "Consumers don't buy music because of the labels, they buy it because of the artist."