e.Digital Corporation (fka EDIG)

[Tinroad]

The new spin: Paying for online tunes

By Jefferson Graham, USA TODAY
http://www.usatoday.com/life/cyber/tech/review/2001-04-26-musicnet.htm

Richard Drew, AP
Rob Glaser of RealNetworks wants to bring a world of online entertainment to you, for a price.

SEATTLE — Rock freak Rob Glaser has 2,000 songs on his computer's hard drive, ripped from his CD collection of such faves as Foo Fighters, U2 and Poe, plus Napster downloads, mostly of outtakes, live cuts and TV performances. "I tip my hat to Napster not just for showing there'd be a demand for download music, but also for proving that a lot of what people want to download isn't just the studio versions," he says. But Glaser's not your ordinary techno-geek music fan.

He's the CEO of RealNetworks. Even if you haven't heard of him, his RealPlayer software likely is on your PC if you've ever listened to audio or watched video via the Net.

His latest enterprise reflects his admiration for Napster. It could be the biggest, most viable replacement for the wildly successful online free-swap service, now that Napster's on the ropes after months of legal setbacks.

Glaser, 38, has united three of the five major record labels, Warner, EMI and Bertelsmann's BMG, with his RealNetworks and America Online to form MusicNet, a paid — and fully licensed — subscription service, with tens of thousands of songs available from each label, to begin by early fall.

Beyond picking up the slack from Napster (which also hopes to transform itself into a pay service in July), Glaser has far loftier goals: that you won't be able to listen to most music or many sports online without his software. Real recently started Webcasting baseball games to monthly, paying subscribers, part of a 3-year, $20 million alliance with Major League Baseball.

Those deals, plus MusicNet, give Real a major advantage over its Pacific Northwest arch rival (and Glaser's former employer) Microsoft and its competing Windows Media format. "It's like that commercial where they don't take American Express," Glaser says. "Major League Baseball won't be available for the next three years using the Microsoft media player. Anyone wants to listen to a baseball game online, they'll have to come to us."

But music, and its huge, proven online attraction, is the centerpiece of the plan. A study just out from the Pew Internet & American Life Project shows nearly 30 million American adults — 29% of all adult Net users, including more than half of Net users ages 18-29 — have downloaded music files. On any given day, 6 million adult Web surfers are downloading music, twice the number making any retail purchase online.

"The success of Napster shows us that people like having access to digital music, where they can download it, organize it and share what they're interested in with their friends," Glaser says.

MusicNet's base price will start at around $10 a month and continue upward for access to more songs, for the right to move them to a portable device or to burn them to a CD.

But will people be willing to pay when Napster has offered them virtually the entire history of recorded song for free?

"There's a whole list of things people like in addition to it being free," Glaser says. A paid service will offer "reliability and quality, and this will be appealing to many people."

And the free ride is nearing an end. Napster, under court order to remove much copyrighted music from its site, is blocking access to tracks by such artists as Janet Jackson, Metallica, Madonna and The Beatles.

The record industry, which to date has sat on the sidelines, is now set to pounce. By year's end, the online landscape will look radically different. Besides MusicNet:

•Universal and Sony plan a summer launch for their subscription service on Yahoo, Duet. Unlike MusicNet, which will offer both downloads and listen-only streaming, Duet is streaming-only, which lets subscribers listen while they're connected to the Net but doesn't transfer ownership of a music file.

•MTV will offer pay-per-song downloads on its MTV.com and VH1.com sites from all five major labels. A handful of tracks are available now, with 10,000 expected by summer.

•Napster, with backing from Bertelsmann, presumably will be competing with MusicNet when it starts charging. Analyst Phil Leigh, with research firm Raymond James, says Napster's brand name and huge pool of 70 million registered users "makes it hard to beat" when it relaunches.

At Bertelsmann's urging, MusicNet's contract with the record labels calls for it to license its content to Napster after several legal and security hurdles are cleared. "We're actively talking to them, and I hope we can put something together," Glaser says.

Theoretically, Napster and MusicNet initially could have equivalent content, which would make it "a real horse race," Leigh says. "Real is happy either way, because their primary objective is to grow the Real technology."

RealPlayer already is the de facto media player for AOL and its nearly 30 million subscribers. Around the world, some 170 million users have registered and downloaded the free player software.

Though Microsoft doesn't register users for its media players, the company readily concedes that more people use RealPlayer than its Windows Media Player. It competitively makes presentations at trade shows and to reporters and analysts to demonstrate its contention that content looks or sounds better in Windows Media.

Nonetheless, "you can hardly go to a Web site and find (an) audio clip not available in the Real format," says Steve Coffey of Net measurement service Jupiter Media Metrix. "Yes, many users also have Windows Media, but ... there's definitely more activity with the RealPlayer in actual use."

Media Metrix shows Real in 26 million U.S. homes, up 47% from last year; Microsoft is in 21.5 million homes, up 31%. "Yeah, they're ahead, but a year ago we weren't even on the map," Microsoft's Michael Aldridge says. "We have a neck-and-neck race now."

Microsoft has made the most headway in the portable player market. Some 60 devices support the Windows Media Audio (WMA) format, intended to replace MP3s. Virtually none play RealPlayer's answer to WMA, RealAudio8 files.

Still, "we upload 500,000 copies a day of the RealPlayer to consumers," says RealNetworks general manager Steve Banfield. "We support more Microsoft users than Microsoft does. Windows Media Player 7 doesn't work with Windows 95, but RealPlayer 8 does. We're not here to promote an agenda, selling new operating systems, but to make the stuff work."

Glaser quit Microsoft in 1993, believing that "the Internet could be used as a broadcasting medium." He began what was then called Progressive Networks with the idea of giving away software, selling premium upgrades and, when he had enough customers, offering exclusive programming.

Real began its $9.95 monthly GoldPass service last August, with audio and video of NBA basketball games, Sports Illustrated swimsuit models and ABC News documentaries. Now there's baseball, too.

"We saw this as similar to what cable TV was in 1979," Glaser says. "Something modest that will be continually improved. It flew in the face of conventional wisdom — people said no one would pay for content on the Internet."

But GoldPass now has 200,000 paying subscribers. At the company's lavish headquarters overlooking Seattle's Lake Washington — complete with indoor bowling alley, foosball and pool tables and free coffee and sodas for all — company execs talk of additional offerings that can eventually be sold to customers, including old TV shows, local newscasts and other sports and music events.

"The Internet got off on the wrong foot by conditioning everyone that everything would be free," says Scott Erlich, RealNetworks' vice president of programming. He's one of two former Fox TV execs helping the company "monetize" content.

Real, unlike most other Net companies, is making money ($3 million in the first quarter), but like most, its stock price has dropped dramatically — from a high of $160 to its recent $10 — sending Glaser's personal net worth tumbling from $2 billion to $400 million. Still, the corporate digs are as fancy as any from the high-flying era, and Glaser says, "I have no complaints. I'm doing just fine."

When not jetting to Hong Kong (Asia is Real's second biggest region), Las Vegas (to attend this week's National Association of Broadcasters meeting) or New York (to meet with MusicNet partners), Glaser bowls at the office, downloads songs onto his portable MP3 player, trades e-mails with rock stars he's gotten to know or just hangs out with them.

"Here's this Ivy League-educated guy who worked for Microsoft, and I've never once heard him talk about computers," says singer/songwriter POE, who met Glaser shortly after her first album, Hello, was released in 1995. "He's a lot of fun to be with, loves to talk about the arts and hear stories about things that go wrong on tour."

Opening for Depeche Mode this summer, POE introduced her latest album, Haunted, on the Real.com site last Halloween and has seen much of her work promoted there, as well. "It's not like I was selling millions of records when Rob said, 'Let's do this,' " she says. "I really respect a guy who supports the artists he loves, even if they're not the flavor of the month."

Call it a real love of music.