April 3, 2001 10:00 PM PDT

MSN joins Net music skirmishes

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MSN Music joins online band
Jeremy Hinman, director, MSN Music
Microsoft is throwing its hat into the post-Napster online music ring, targeting the same audience rival RealNetworks seeks with its ambitious MusicNet service.

The Redmond, Wash.-based software company unveiled a new MSN Music site Wednesday, the first time it has directly offered music as a part of its online content portfolio.

As technology goes, the new service is far from groundbreaking; visitors can listen to thousands of online radio stations much like those at AOL Time Warner's Spinner.com and other Webcasters' sites. The service adds a recommendation engine using technology bought from start-up MongoMusic last year, allowing listeners to select stations that sound like artists they like, or which fit a particular mood.

Analysts say the service is as much a placeholder in a quickly evolving market as a serious bid for today's customers. All of the big portals, as well as music labels and smaller online music companies, are scrambling to be in a position to attract online music lovers to new subscription services as free music disappears from Napster. Microsoft, with a sweeping consumer reach and a strong copy-protection technology of its own, now becomes a serious contender in that match.

"It's too early to tell how big this gorilla is going to be in this marketplace," said Steve Vonder Haar, a Yankee Group analyst. "But this is more than Microsoft dipping its toes in the water. This is the company up to its ankles, or maybe even its knees."

Musical chairs
Microsoft adds its name to the list of would-be music titans as uncertainty runs high in the chaotic online music world.


Gartner analyst P.J. McNealy says consumers won't find a compelling offering at any site that serves up only partial catalogs, as opposed to a complete listing from the Big Five record labels.

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Technology companies have complained for months that online music businesses simply aren't viable unless the major record labels begin licensing their catalogs for Internet distribution. The first major announcement in that regard came Monday, as AOL Time Warner, EMI Music Group and Bertelsmann agreed to give distribution rights to a new RealNetworks-backed entity dubbed MusicNet.

The announcement of that service, which will go well beyond any label-authorized project yet seen, sent ripples of concern--and hope--throughout the industry. Label representatives argued in front of Congress on Tuesday that the deal proves that market forces are working. Napster CEO Hank Barry disagreed, saying that Congress still needs to step in to prevent the labels from abusing their market power.

But it is clear that the logjam on music licensing is breaking up, even if slowly and inconsistently. Executives at labels say serious talks are ongoing with "all the logical players," not just RealNetworks.

The new MSN Music service is modeled largely after services launched in the late 1990s, with a little of last year's recommendation services thrown in. Like Spinner or NetRadio, it offers music stations by genre, subdivided into such categories such as "Space-Age Pop/Exotica" and "Lounge Vibe."

Like those other Webcasting services, it is legally barred from offering songs on demand. Thus, listeners can search by artist, but can play only stations that are populated by songs resembling that artist.

"I would not call (this service) revolutionary," Vonder Haar said. "But given the relative elegance of its interface and the scale of MSN's audience, it will attract an audience."

Microsoft does plan to expand the service to a subscription model, with downloads of music available. Those plans will depend on negotiations with the music labels.

"We don't know exactly how the subscription-based model will work," said Bob Visse, a group product manager for MSN's marketing division. "But MSN is an extremely attractive option for the labels. We don't own any of the labels, so we can work with everybody."

Microsoft has another advantage hidden not very far up its sleeve: It also produces Windows Media audio technology and its associated copy-protection technology, which many of the labels have already licensed for their own download services. This will likely help assure the recording industry that Microsoft can create as secure a download offering as anybody in the business.

What is the radio?
The software company's entry into the market throws a spotlight on changes that are happening across the Web radio industry, which is evolving as funding dries up and revenues prove slim.

Radio Free Virgin added a new feature that promises to test the boundaries of copyright law Monday, allowing consumers to record songs streamed over its service. Meanwhile, other companies are shifting business models away from the PC.

MP3.com and Listen.com each have recently begun licensing their content to outside businesses to play as background music in gyms, offices or other settings. Other companies say they are getting away from the PC altogether.

Taking the farthest step in this direction is a company called IM Networks, which recently forged a deal with Philips Electronics to provide an Internet radio connection inside an ordinary boom-box stereo system. Analysts and industry insiders say this model, in which consumers can tap into a Net radio station in the same way they listen to an FM or AM broadcast, could push Web-based streaming to a new audience.

"You can still build a business model (on) the PC," said Radio Free Virgin General Manager Zack Zalon. "Fundamentally, digital radio is better (than ordinary radio). But I do believe it has to move off the PC into the device world before it can compete with terrestrial radio long term."

Microsoft, by contrast, still sees the personal computer as the center of the home entertainment center. The new service and its successors are geared toward being taken onto other devices, but will ultimately center on the PC, Visse said.

"Microsoft's vision has been that the PC is the digital center of the home, but that the PC extends to these other devices," Visse said. "This (service) is an extension of that."

 

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