Digital Media

Rupert Murdoch said in July he wanted to reshape MySpace into an entertainment hub, and sources say the site now plans to launch a new video service sometime in the next several months with the help of sister site Hulu, CNET News has learned.

The big question is whether MySpace's service will offer downloads or a subscription service.

Rupert Murdoch, News Corp. chairman

(Credit: Dan Farber/CNET Networks)

Murdoch, the chairman of media conglomerate News Corp., intends to overhaul MySpace Video by bringing in a larger number of feature films, TV shows, and music videos. The social network's new video area will be given a major face lift, more exposure, and be re-branded so as to make it more attractive to advertisers, according to two sources with knowledge of the plans.

A MySpace spokeswoman declined to comment.

Murdoch's News Corp. owns MySpace and a large chunk of Hulu, which also boasts NBC Universal and Disney as its other stakeholders.

MySpace already streams some of Hulu's TV shows and a tiny number of full-length movies to users. But MySpace Video, as it is now, can't come close to competing with the Web's top video services, such as YouTube, Netflix's Watch Now, or Crackle.

A visit to MySpace Video on Monday evening revealed a section that provided few clues that feature films or prime-time TV shows were even offered there. Besides being buried, the content is displayed on a jumbled Web page. The links to the few long-form films and shows are mixed in with the much more plentiful short clips and trailers. To be frank, the site is a mess.

"MySpace's intention is to do a much better job of monetizing the video area," said one source.

What isn't clear is whether MySpace Video will offer downloads and subscriptions. Last week, Murdoch and and Jeff Zuker, CEO of NBC Universal, said ad-supported Hulu is considering whether to offer pay-per view and a subscription service.

Whether a new MySpace video service would also offer these isn't clear.

But it seems logical to set up a Hulu storefront at MySpace, which would enable the site's users to purchase a movie download or rent a flick without having to hop over to Hulu.

Rhapsody's iPhone app will allow users to stream ad-free music and add selections to their playlist queue.

(Credit: Rhapsody)

Subscription music service Rhapsody, a division of Real Networks, has announced plans to port its service to Apple's iPhone and iPod Touch. In a blog post Sunday, the company said it will submit the application (demonstrated on the video below) this week to Apple for review.

Historically, Apple has steered clear of subscription music, making it impossible for services such as Napster or Rhapsody to work with the iPod, fearing competition with its own iTunes music service. But the success of iPhone music applications such as Pandora, Last.fm, and Slacker, may have opened the door for subscription services as well. (Last.fm is a part of CBS Interactive, which also publishes CNET News.)

Rhapsody's mobile app will require that users hold a Rhapsody-to-Go account, which currently runs $14.95 per month. (Non-subscribers will apparently be offered a limited time free-trial period.) The Rhapsody app allows subscribers to explore and stream Rhapsody's entire online music catalog over EDGE, 3G, or Wi-Fi, as well as create and store playlist queues of their favorite content. The app does not, however, allow users to download and store Rhapsody songs directly on the device, or cache content temporarily to hear offline.

If Rhapsody's application is approved by Apple, it won't likely be alone. Competing services such as Spotify have shown off similar applications, and Napster will surely want to get in on the action as well. The real question is whether people will find subscription music capabilities valuable. With free, ad-supported services such as Pandora already dominating the spotlight, it remains to be seen whether Rhapsody can convince new customers to spend close to $15 a month for unlimited on-demand music streaming.

In the blog post, Rhapsody also revealed plans to develop an Android application. It's not known whether that version would offer greater flexibility (local storage, over-the-air downloads) than the version for the iPhone.

Rhapsody on iPhone from Jamie on Vimeo.

(Via PC World)

The new Kazaa appears to be mostly a run-of-the-mill subscription music service, but it does add a few new twists. The one that stands out right from the sign-up phase is that subscribers can either pay by credit card or via their telephone company.

(Credit: Kazaa.com)

"Brilliant Digital Entertainment Inc. (BDE) and Kazaa are not affiliated with your local telephone company," Kazaa writes in the company's terms of service, "However, for your convenience, BDE's charges will appear on your local telephone bill."

Music industry insiders have long talked about creating subscription services in partnership with Internet service providers, who could tuck monthly charges into a phone bill. The thinking is that consumers would be less likely to feel the pinch of by monthly fees if they were mixed in with all the other fees found in typical phone bill.

These ISP-music stores have yet to emerge in any significant way, but Kazaa's subscription service, announced Monday, appears to borrow this idea in an attempt to make the $20 monthly charges a little more palatable.

One of the main problems I saw this weekend when I tried out Kazaa's new service was that in order to post the charges to my phone bill, the company asked me to submit my Social Security number. That is bound to spook plenty of people.

Ring-tone companies have charged customers this way for a while, but to the best of my knowledge, not another major music service offers a similar payment option.

After becoming one of the world's most popular file-sharing programs, Kazaa was nearly sued out of existence several years ago. The new iteration is much more legal, if not much more routine.

The songs are protected by digital rights management, which is the norm for most subscription services. The service supports PCs only, not Mac or Linux, which means it is not compatible with iPods. Of course, like most subscription services, when a person stops paying, they lose their songs.

Brilliant Digital Entertainment, Kazaa's parent company, appears to be betting that Kazaa's brand will give it an advantage in a U.S. market, which has seen a score of music subscription services come and go. None of them have found a significant audience.

Kazaa is coming back from the dead.

One of the most recognizable brands in the history of illegal downloading is due to officially resurface, perhaps as early as next week, sources close to the company told CNET News. Only this time the name Kazaa will be part of a legal music service.

Altnet and parent company Brilliant Digital Entertainment attached the Kazaa brand to a subscription service that will offer songs and ringtones from all four of the major recording companies. For the past few months, a beta version has been available.

The company tried recently to ratchet up expectations with a series of vague, and what some considered misguided, press releases.

The site will open with over 1 million tracks. According to the blog TorrentFreak, the new Kazaa will offer unlimited downloads for $20 a month.

Kazaa was developed by Niklas Zennström and Janus Friis and rose to prominence following the first wave of peer-to-peer networks. The courts effectively shut the company down when it ordered it to prevent users from committing copyright violations.

Kazaa is joining the growing number of former rogue file-sharing applications and services whose names are now being used for legal operations.

First came Napster, and just this week a Swedish software company revealed that it planned to relaunch BitTorrent tracking site the Pirate Bay as a pay service.

What hasn't been proven yet is whether any of the once outlaw brands can be used to make money legally.

(Credit: ZillionTV)

A new company called ZillionTV says it will soon introduce a new service that will enable cable and satellite subscribers to cut the cord and get subscription-free movies and TV shows right on their TVs from the Internet.

The company, which officially launched on Wednesday, has struck deals with some major Hollywood movie studios and TV networks, including Disney, 20th Century Fox Television, NBC Universal, Sony Pictures, and Warner Bros. Digital Distribution.

The plan is to offer streaming movies and TV shows directly to TVs using a broadband connection. The company has created a small piece of hardware it calls a Z-bar, which provides the connection between the TV and the Internet via an Ethernet cable or Wi-Fi. The Z-bar also acts as a receiver for the company's unique remote control, which works a lot like a laser pointer and uses sensing technology to navigate through the content menu on the TV screen.

The back side of the Z-bar shows the connections to the TV and the Internet.

(Credit: Marguerite Reardon/CNET )

The ZillionTV service, which is currently being beta tested, will only be offered through an Internet service provider. It will be commercially available starting in the fourth quarter of 2009.

Unlike some other Internet-to-TV services, such as Netflix's movie rental service, ZillionTV does not require a subscription. It also doesn't require users to buy an expensive box, such as Microsoft's Xbox 360, Apple's AppleTV, or even Roku's $99 digital video player. Instead, for a nominal activation fee of less than $50, users will get the Z-bar and remote. And then they will be able to view up to 15,000 titles of TV shows and movies through the service without having to sign up for a monthly subscription.

New York newspaper Newsday plans to begin charging online readers for access to its content, rejecting a trend toward free online newspaper content.

The move, which comes as the newspaper industry is mired in financial turmoil, was announced Thursday during a conference call in which Cablevision, the newspaper's owner, also announced it would write down the value of its $650 million acquisition of the newspaper by $402 million.

"Our goal was, and is, to use our electronic network assets and subscriber relationships to transform the way news is distributed," said Tom Rutledge, Cablevision's chief operating officer, according to a Reuters report on the call. "We plan to end distribution of free Web content and to make our news gathering capabilities service our customers."

Rutledge did not elaborate on the company's online subscription plans, but Newsday publisher Timothy Knight hinted that the move could be used in a bundling arrangement to cross-promote content on the newspaper site and in Cablevision's television programming.

"We are in the process of transforming Newsday's Web site into an enhanced, locally focused cable service that we believe will become an important benefit for Newsday and Cablevision customers," Knight said in a statement. "More particulars will be forthcoming over the next few months."

Such a plan would go against the trend of newspapers abandoning the pay-for-content model. Among the country's largest newspapers, only The Wall Street Journal has managed to continue charging online subscription fees. The New York Times abandoned a two-year experiment with the Web-subscription model in 2007, suggesting that the company's projections for subscriber revenue were small compared with advertising sales.

As readers have increasingly gone online for their news, papers have suffered declining subscriber numbers and lower advertising revenue, resulting in a dramatic industry contraction. Many newspapers have announced staffing cuts in the past couple of months, and some have warned that they may face closure soon if they can't enact further cuts or find buyers for their operations.

The Rocky Mountain News in Denver announced Thursday that it will cease publication on Friday, and the publishers of the Seattle Post-Intelligencer and San Francisco Chronicle have warned that they may soon follow suit.

LOS ANGELES--For anybody wondering why Microsoft and the top record labels continue to promote subscription music services, the answer was revealed Thursday.

Label exec David Ring says download sales by themselves won't solve music industry's woes.

(Credit: Universal Music Group)

David Ring, executive vice president of business development for Universal Music Group's digital arm, said at the EconMusic Conference that the recording industry simply can't sustain itself with download sales alone.

"If what we're trying to do is one-by-one downloads...that's not a business that can grow," Ring told conference attendees during panel discussion he participated in. "It won't be healthy for the industry."

Prior to Ring's statement, Chris Stephenson, an executive in Microsoft's entertainment unit, was ballyhooing the progress made in Zune's subscription service. Zune is the digital music player that Microsoft launched in November 2006 to compete with Apple's iPod. This is also the device that saw a 54 percent decline in sales for the fourth quarter of 2008.

Ring's statement made a big impression on me. The recording industry obviously continues to work the subscription angle, which is more than 5 years old, because a better way to boost profits hasn't come along. Label honchos aren't ready to discount anything--not when the margins on 99-cent downloads are so slim.

I was under the impression that eventually the download would replace the CD as the music sector's main sales unit. I assumed that instead of packaging a dozen songs together on a disc, the labels would just be forced to sell those songs individually. That isn't what they want to do, according to Ring.

Ring made clear subscription services are not the only business model Universal Music, the largest of the four top record labels, is exploring. Universal execs will continue testing strategies until they find one, or a combination, that works.

What strategies show promise? Panel members discussed some well-worn ideas, such as bundling music fees into people's Internet-access bills. One idea tossed around was packaging music into Netflix or a similar service.

I asked the panel, which included Cory Ondrjka, a vice president at EMI's digital unit, and Michael Spiegelman, head of Yahoo Music, how much longer the sector would try to breathe life into subscriptions. Anyone can see consumers just haven't warmed to the idea of renting songs.

There isn't a single music-subscription service selling music from the top labels that generates significant revenue. Yahoo couldn't make a go of it and got out. Napster and Rhapsody, RealNetwork's subscription service, continue to appeal to niche audiences. People just don't like the idea of losing their music if they stop paying fees.

Ring never wavered. He said subscriptions work and cited Netflix and cable TV as examples. There's no arguing that the vast majority of us pay for subscriptions: magazines, cellphones, insurance, Internet access, the list is long.

The music industry, however has yet to produce a subscription plan the public finds as compelling. And what was clear after listening to the panel is that nobody in the sector is ready to give up trying.

Best Buy's acquisition of Napster is likely to mean RealNetwork's Rhapsody music service will wave goodbye to more than just one of its biggest partners.

Rhapsody of course powered Best Buy's digital music store. Two music insiders told me on Thursday, while I was reporting a story about whether Apple is wise to get into music subscriptions, that the Napster acquisition will almost certainly mean Best Buy will sever it's relationship with Rhapsody. This means that RealNetwork's CEO Rob Glaser would no longer have the muscle behind him to demand electronics companies make their players compatible with his service.

As the largest electronics retailer, Best Buy could lean on electronics makers (all except Apple) to make sure their devices worked well with its music service, Best Buy Digital Music Store, powered by Rhapsody. There's a story behind this tortured name and I'll get to in a sec.

"The acquisition news was just announced so we are still in discussions with Best Buy about our longer-term relationship," a Rhapsody spokesman said in an e-mail.

The situation illustrates a major headache for music subscription services. Napster and Rhapsody have had to cater to the host of digital music players on the market. When those devices made changes to their software, it could cause serious glitches in how the music service performed on them.

Considerable expense and effort went into looking for problems each time a device was upgraded.

One of the questions raised by the Best Buy-Napster deal is whether the retailer intends to battle Apple. That seems unlikely. According to one source close to RealNetworks, what Best Buy has complained about for a long time is not having enough control over its music service. Best Buy began offering the Rhapsody service in 2003. Two years later, Best Buy cut a deal with Napster and also bought a 10-percent stake in that service.

In 2006, Best Buy execs went back to Rhapsody and said that it wanted to offer a branded music service. That's how the Best Buy Digital Music Store powered by Rhapsody was born.

Losing Best Buy won't mean the end of the world to Rhapsody, said the source. Yahoo Music has encouraged former customers to join Rhapsody. Best Buy was a healthy driver of subscribers and of course, there was the strategic value. But overall, the outlook for stand-alone subscription services doesn't look good.

It's hard to figure why anyone would do any prospecting in the stony terrain of digital-music subscriptions.

This week, Best Buy acquired the remade and beleaguered version of Napster for a song. The deal is likely bad news for RealNetwork's Rhapsody, the current engine behind Best Buy's digital music store and one of the pioneers in music subscriptions. (I wrote a sidebar about the troubles RealNetworks' Rhapsody may face if Best Buy walks.)

And don't forget, the Yahoo Unlimited subscription service was shuttered earlier this year.

The all-you-can-eat music services are the ones getting chewed up. So why do rumors persist that Apple is interested in getting into music subscriptions? In March, the Financial Times reported that Apple had talked with the top record labels about the possibility of launching a service that would give iTunes users access to its entire library in exchange for paying a premium for iPods or iPhones.

Last month, an anonymous tipster sent e-mails to several Mac rumor sites claiming that Apple intended to charge $130 for "iTunes Unlimited" starting in October. My music industry sources confirmed that Apple has discussed a subscription service with the music industry but said that Apple has yet to sign any licensing deals.

Still, the question is what motivated Apple to consider subscriptions. And it isn't just Apple. CNET News reported on Thursdaythat Sony Ericsson, the mobile-phone maker, will launch a music service--that will likely include a subscription offering--as early as next week. The move is obviously designed to compete with Nokia's "Comes with Music" initiative. Nokia has begun selling phones that enable owners to access music from three of the four largest recording companies (EMI has yet to sign on) for 12 months. When that period is over, owners get to keep the music but must pay a fee to continue the service.

Ease the pain
What the Nokia and Sony Ericsson services have in common with Napster, Yahoo, and all the subscription services that have come before is that they are designed to generate a recurring income for the music industry. What Nokia, and presumably Sony Ericsson, will do differently is fold subscription charges into a customer's phone bill, where the music industry hopes consumers will find it less painful to pay.

This is just one of the many digital business models the labels are testing. What the cell phone companies must do now is prove they can overcome the obstacles that tripped up other services. One of the biggest challenges, if not the biggest, is consumers apparently don't like the idea of their music disappearing if they stop paying fees.

"I'm not certain how big the consumer (adoption) is going to be," said Mike McGuire, a digital-music analyst with Gartner. "When people think of subscriptions, they think of their magazines and newspapers. When I stop my New Yorker subscription, (the publisher) doesn't come to my house and take back old issues...even though my wife may want him to."

The industry has fared poorly, but perhaps Apple sees something no one else does. The company has a record of making money where others have failed. Digital-music players hadn't found much more than a niche market until the iPod.

Apple CEO Steve Jobs said during the "Let's Rock" press gathering earlier this month that iTunes has 65 million credit cards in its database. Apple already has these people used to buying music from iTunes. How much more of a sales pitch would be required to get them to pay a monthly fee for access to the iTunes' library?

Chris Castle, a longtime music insider and attorney, says he believes there's a market for subscription-based cell phones.

"There are people out there who have high-end home audio systems that want high fidelity and clean copies of songs," Castle said. "They don't want to rip lots of content. They aren't willing to pay a $1 a pop for it, but they'd be willing to pay something for it. I think preloaded hard drives are a business, provide they offer lots of stuff. The questions are what do the publishers want for it? Can you make a deal?"

Castle sees the potential for artist-driven or genre-driven preloaded devices.

Risks galore
There are still plenty of risks, Castle acknowledged. Here's just a few of them. Any new music service, whether selling downloads or subscriptions, must compete against iTunes, the No. 1 music retailer in the land, which just happens to be tethered to the best-selling digital music player, the iPod. In addition, mainstream consumers still aren't familiar with the music-subscription model. Napster and Rhapsody both spent a lot of money trying to educate consumers on how the music-subscription model works.

While some download stores, such as Amazon.com, have begun selling songs in the MP3 format--which means they will play on the iPod--subscription services still wrap music in digital rights management software. That means those songs won't play on the iPod.

Another big problem is that most of the subscription services that have come before have had to make themselves compatible with the plethora of iPod competitors. That meant every time a device maker upgraded its firmware, Yahoo or Napster had to make sure their service still functioned properly on the device.

Since Rhapsody and many of the other subscription services were forced to work with Windows Media, they often had little say on when upgrades or fixes to the software were made, said a source close to Rhapsody.

And when it comes to consumer adoption, there's not much to prove the cell phone music services will have an easier time acquiring customers. Research firm Strategy Analytics said Thursday a recent survey showed that although 83 percent of respondents listened to music on their phones, only 6 percent of the tracks were obtained from mobile stores.

Who knows, Apple could come in and prove the experts wrong, but at this point a better strategy appears to be to let others keep taking their whacks.