July 1, 2002 10:05 AM PDT

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Taking a step ahead of any of the other competing music subscription services, Listen.com has won licenses to use music from all five of the major record labels.


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The company on Monday announced it has won rights to distribute music owned by Vivendi Universal's Universal Music Group, the last big label to sign on to its Rhapsody service. As the first of the half-dozen services in the budding subscription market to reach that goal, it's a substantive accomplishment--but still a flawed one.

All subscription services have been deeply criticized for offering only a narrow band of music, largely because each has lacked access to one or more labels' catalog of recordings. But even with all the labels on board, Listen--and those services that follow in its wake--has been denied access to many popular artists, such as the Beatles or Radiohead, whose labels don't own all the rights to their music.

Those high-profile gaps in music catalogs will continue to put off consumers, potentially driving them to free file-swapping services, some analysts predict.

"There's still that next step that faces all these services," said Ryan Jones, an analyst for research firm The Yankee Group. "In terms of total catalogs, it might not seem like big holes, but (missing popular artists) can leave consumers pretty severely disappointed."

Listen is talking with its label partners about just why so many individual songs and artists still aren't available, CEO Sean Ryan said. But he said having the bulk of available music would appeal to most consumers, who wouldn't spend considerable time looking for gaps in its collection. In all, Rhapsody, which costs $9.95 a month, will offer 175,000 tracks from the major labels and from independent record companies including Zomba Recording, TVT Records, Bar/None Records and Sub Pop Records.

"We feel pretty strongly that (with Universal) we are the front-runner," Ryan said. "Admittedly, it's a long race."

Listen, one of the last independent online music holdovers from the dot-com go-go days, has gained the success of the tortoise in the race against the record labels' hare. Monday's announcement represents the fruit of years of often painful negotiating, which began to flower only after the labels themselves decided to move toward online distribution ventures.

The label-backed services, which include Pressplay and MusicNet, each launched at the close of 2001 as the heavies in the new subscription market. Their status as joint ventures drew criticism from a federal judge and prompted a Justice Department antitrust investigation. The DOJ said last week that the investigation is ongoing.

But neither joint venture has gained traction in the market, despite being distributed through partners including Microsoft, Yahoo and RealNetworks. AOL Time Warner, which is a co-owner of MusicNet, has even delayed releasing the service through its America Online service.

Analysts expect most of the big services to get licenses similar to Listen's by year's end, barring insurmountable infighting between the labels. But even with such agreements, it may take some time before any paid service sees widespread adoption by consumers. A soon-to-be-released study by The Yankee Group predicts subscription services won't start eating into the volume of free trades through pirate file-swapping services until 2005.

All paid services are moving toward expanding features that will allow them to compete with the pirate networks more directly, including the ability to burn CDs and transfer songs to portable devices. Labels are still balking at offering most of those licenses, however.

For now, all of the major subscription services offer different limits on features such as downloads, song streams and the number of songs available per month. Listen allows subscribers to play an unlimited number of songs every month and gives some limited ability to burn CDs. MusicNet and Pressplay both cap the number of available songs but allow them to be downloaded. Pressplay allows very limited ability to burn CDs and transfer music to some portable devices.

In a separate deal announced Monday, online music company FullAudio struck an agreement to allow its customers to purchase digital songs from AOL Time Warner's Warner Music Group. Once the songs are purchased, listeners can burn the songs onto CDs or download them onto MP3 players. Warner Music has been selling individual tracks for 99 cents on AOL.

News.com's Jim Hu contributed to this report.

 

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