MTV, RealNetworks tie music ventures in new company

The companies will compete with Apple's enormously successful iTunes online music service.

RealNetworks and MTV Networks have formed a new company that will combine their online music services and have an exclusive deal with Verizon Wireless to be the platform for its wireless music service. The companies are joining forces to compete with Apple's enormously successful iTunes online music service.

Michael Bloom, the leader of MTV's Urge music service, will be at the helm of the new company, called Rhapsody America, said Van Toffler, president of MTV Networks Music on a conference call Tuesday. MTV plans to formally begin marketing the new service at its MTV Music Awards show, which will be held Sept. 9 in Las Vegas.

RealNetworks' Rhapsody subscription service will now replace MTV's Urge brand for its own online music service, Toffler said. Verizon's VCast music service will be the exclusive mobile platform for Rhapsody America's music service, he said.

On the conference call, RealNetworks Chairman and CEO Rob Glaser said the new company will deliver on RealNetworks' vision of the "jukebox in the sky everywhere" that it has promoted since it first launched its RealPlayer digital media player.

Rhapsody offers access to its entire catalog for a monthly fee. This subscription model is not as attractive as iTunes' model of selling music per song, which is why Rhapsody has not been as successful as iTunes, said Josh Bernoff, a research vice president with Forrester Research.

"Certainly almost all of the money is going to iTunes," he said. "Most people are not really comfortable with the subscription model right now. It has a serious weakness, which is once you stop subscribing, the music stops working."

Another subscription service, eMusic, is more appealing because it's an MP3 download service that lets users keep the songs they've downloaded during their subscription period even after they are no longer a subscriber, he added.

Rhapsody does offer a nonsubscription option that lets users purchase songs from its library of more than 4 million, said Kevin Nakao, vice president of marketing for Rhapsody America. But the company has not done a successful job marketing that, which will change now that RealNetworks and MTV are joining forces to promote Rhapsody. As with iTunes, songs cost US$0.99 on Rhapsody for nonsubscribers, while subscribers pay US$0.89 each.

"One of the things we want to do is use this as an opportunity to show the marketplace the benefit of our unlimited subscription model ... but how we also offer other options for people that want to purchase tracks and want to use Rhapsody to manage that," Nakao said. "We're a total music-service solution."

Rhapsody's unlimited subscription service costs US$12.99 a month for users who want to play music from their PCs and US$14.99 for users who use compatible portable music player.

Until Urge and Rhapsody converge, Urge users can use their log-in information for that service to log into Rhapsody, Nakao said. Though Rhapsody users cannot do the same with Urge, RealNetworks is already making available to Rhapsody subscribers some specialized content from MTV and VH-1 television networks that was previously only available on Urge, he said.

MTV Networks, owned by Viacom, runs Urge, a music download service it launched in May 2006 in partnership with Microsoft. Nakao said that MTV's Urge deal with Microsoft was set to expire this year, so the relationship between the two companies for the service will end.

The move to cozy up to Microsoft's competitor RealNetworks was a logical one for MTV since Microsoft launched a competitor to Urge, the Zune Marketplace, in conjunction with the launch of its digital music player Zune last November, said Susan Kevorkian, a program manager at analyst firm IDC.

"This doesn't come as a surprise," she said. "MTV needed to find another platform that was less of a direct competitor."

In turn, MTV's long-time expertise in offering compelling music programming and its strong brand gives RealNetworks' Rhapsody service a much-needed image and marketing boost, Kevorkian said.

Another aspect of the deal that will be important to watch will be over-the-air downloads to wireless handsets that eventually will be available through Verizon's V Cast service, she said. Apple's iPhone allows songs purchased via its iTunes music service to be transferred and played on the iPhone, but songs cannot be downloaded directly to the phone from iTunes, Kevorkian said.

V Cast currently allows Verizon Wireless subscribers to purchase songs either through their PCs or wireless handsets on a per-song basis. However, songs purchased from a handset cost US$1.99 a track because they also are simultaneously downloaded to the V Cast online service that is managed via PC, said Jeff Nelson, a Verizon spokesman.

The Rhapsody America/Verizon deal allows for the potential of delivering songs over the air to wireless handsets on a subscription basis, something that is not currently available through Verizon's music service, Kevorkian said. Though she acknowledged that the subscription model has not been well-received by consumers used to purchasing music outright, the ability to provide them with more options on more devices should be a boon for the new venture. "It's about expanding choices for consumers," she said.

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