January 7, 2002 9:00 PM PST

Listen.com taps big labels for music service

Listen.com has signed music distribution deals with two major record labels, giving it a long-awaited power boost in the race to create the perfect online jukebox.

The San Francisco-based company said it has signed deals with Bertelsmann's BMG Entertainment and EMI Recorded Music, which together represent just under a third of U.S. music sales.

Like many other online companies, Listen.com has been seeking distribution rights from the five major labels for more than a year as it refocused its business on digital music subscriptions. Its product, dubbed Rhapsody, launched in December, offering access to streams of independent-label music for a small monthly fee. The new major-label catalogs will be added to several existing options.

The deals are a big step forward for Listen.com and represent further loosening of the big labels' tight grip on online music distribution. But analysts caution that it will be a long time before Rhapsody or any competing service gains ground with consumers still skeptical of opening their wallets for digital downloads.

"This is great for Listen," said Mark Mooradian, an analyst with Jupiter Media Metrix. "But I have yet to see anything that's going to definitively change the market right now."

Executives at Listen.com say they are realistic about the likelihood of slow consumer adoption. Paid music subscription services launched en masse only last month, with options appearing on RealNetworks, Yahoo and America Online as well as Listen.com. There has been no evident consumer rush to try these services, and analysts say a groundswell of support is unlikely until any single service manages to offer music from all five major labels; currently, no service offers the full range of major-label catalogs.

Nevertheless, the Listen.com deals indicate that the major labels are becoming more receptive to competitors in the online distribution market. This shift comes as record companies see offline revenue dipping for the first time in a decade--and as the Justice Department opens an antitrust investigation into their MusicNet and Pressplay online distribution joint ventures.

Whatever the causes, Listen.com executives say the labels have been more willing to work with outsiders in recent months.

"We found in general the labels are coming around to an acceptable financial model," Listen.com CEO Sean Ryan said. The combination of circumstances "has pushed them over from a self-interested point of view to saying, 'We need to do this.'"

The different subscription models now in the market are turning into a kind of consumer research program as well as actual commercial services. Each offers a slightly different set of features on a roughly comparable breadth of music.

Both MusicNet and Pressplay offer a limited number of downloads and streams of music per month. Pressplay allows some limited ability to burn music to a CD; MusicNet does not. Meanwhile, Rhapsody's service is all streaming music with no limit on the number of songs that a subscriber can listen to in a given month.

This kind of experimentation is critical as the young market gains its feet, said Jay Samit, senior vice president of EMI Recorded Music. EMI distributes music through MusicNet, Pressplay and now Rhapsody, as well as several other fledgling subscription plans.

"No one knows exactly how consumers will react to subscription models," Samit said. Only competition between the services will show the industry which model works, he added.

 

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