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Wash Post on Music Deal...

3 Music Firms in MusicNet Deal
http://washingtonpost.com/wp-dyn/articles/A29558-2001Apr2.html

By Christopher Stern
Washington Post Staff Writer
Tuesday, April 3, 2001; Page E01



Three of the world's largest music companies announced yesterday that they were joining together with a software company to form a new subscription service to sell music over the Internet.

AOL Time Warner Inc., EMI Group PLC and Bertelsmann AG agreed to license their music to and take a minority investment stake in MusicNet, a division of RealNetworks Inc. MusicNet is supposed to speed the rollout of digital music by serving as a copyright clearinghouse for any company that wants to offer Internet users the ability to download songs or subscribe to an online music service.

The three record companies involved in yesterday's deal -- Warner Music Group, EMI and BMG Entertainment -- say their deal with MusicNet will allow them to finally profit from the huge demand for music on the Internet. MusicNet hopes to line up similar agreements with the two remaining major firms, Sony Music Entertainment and Universal Music Group.

It is likely to be several months before the service is active. RealNetworks Chairman Rob Glaser said yesterday that MusicNet is still working on the technology that will allow music companies to trust the Internet with their copyrighted material. Glaser said he is confident the technology will be in place by late summer, when AOL and his own company, RealNetworks, plan to launch music services on their respective sites.

Asked why he would enter an agreement before the technology has been nailed down, Richard D. Parsons, co-chief operating officer of AOL Time Warner, joked, "I am holding Rob's first-born hostage."

Parson's quip underlines the high stakes in the world of Internet-delivered music. Napster, the controversial online music-swapping service, has signed up more than 60 million registered users who regularly trade music over the Internet without paying for it. The world's media companies would love to tap into the online market, but have not yet figured out how to do so in a way that protects their copyrighted material from piracy.

Despite the technology questions that remain, the companies said MusicNet is the answer they have been looking for. "The days of distributing music safely, easily and legally have finally arrived," said Parsons.

The announcement came the day before a scheduled Senate Judiciary Committee hearing on the online music industry. Senate Judiciary Chairman Orrin G. Hatch (R-Utah) has criticized the major record companies for being slow to react to consumer demand for online music.

Glaser said the deal announced yesterday would speed the rollout of online music services, but denied that it was an effort to deflate criticism of the music industry. The timing of the announcement, he said, was a coincidence.

One industry source suspects otherwise. "I can only think that all the light shining on this had to force people to take a hard look and maybe get some licensing deals going," the source said.

Napster chief executive Hank Barry is expected to testify before the committee that record companies have refused to sign licensing agreements with his service despite a good-faith effort to protect their intellectual property online.

Hatch has said that Napster is clearly violating copyright laws, but has warned the large music companies they need to quickly put music services online or face possible congressional action to change the copyright laws. Hatch has also warned that Napster's popularity could prove to be a powerful force in Washington.

Napster is doing its best to harness its supporters throughout the country. It has encouraged its users to attend today's hearings with an offer of free T-shirts and concert tickets. Yesterday Napster downplayed expectations of a large turnout of supporters. "This is not a march or anything like it," said a Napster spokeswoman.

Joel Klein, Bertelsmann Inc.'s chairman and chief executive, said yesterday it is possible Napster could become a customer of MusicNet, which would take Napster a long way toward resolving some of its outstanding legal and technical problems. "We think [MusicNet] provides a real glide path for Napster to reach its potential," Klein said.

Klein served as the Clinton administration's chief antitrust official before joining Bertelsmann in January. Bertelsmann is working with Napster to develop a business plan that would allow the company to begin charging its users for access to online music.




© 2001 The Washington Post Company