Napster-MusicNet Deal Is a Real Help

ANALYSIS When executives at Warner, EMI and BMG formed MusicNet with RealNetworks in March, few envisioned that the deal also meant climbing into bed with Napster.

But two months later, Rob Glaser used his dual capacity as CEO of both RealNetworks and MusicNet to sign a deal that contractually links the outlaw song-swap company with three of the five major music labels. When news of the deal first leaked into the press, Warner Music Group issued its own release to throw cold water on the development. "Our content will not be available to Napster until we are reasonably satisfied that Napster is operating in a legal, non-infringing manner," the record label said.

The labels and Napster have had differences of opinion on the meaning of "legal" and "non-infringing." Yet, at the press conference announcing the deal, Napster CEO Hank Barry said he fully expected to have access to the music represented by the partnership.

But far more than a content grab by Napster, the deal was a format coup for RealNetworks. Glaser has watched during the past two years as the addictive song-swap service made MP3 the currency in which digital music is consumed and traded. Now he hopes a shrewd business deal would accomplish what 90 million copies of RealPlayer couldn't.

"It's a huge platform win for RealNetworks and a validation of the ubiquity of RealPlayer," Glaser said.

But how big a win it is will depend on how consumers react to the new Napster when it is unveiled July 1. In order to gain access to MusicNet's repertoire, Napster users will have to pay $10 to $20 a month. They will be able to download a certain number of tracks for that price, as well as swap tracks with other MusicNet members. Once they stop paying their bill, the music expires.

The new Napster might only barely resemble the freewheeling service it once was, but Glaser has good reason to hope it catches on nevertheless. RealNetworks is fending off an increasingly strong challenge from Microsoft in the battle for leadership in the streaming-media industry. Real guards a small lead over Microsoft's Windows Media Player, but much of that was built on an exclusive relationship with AOL that expires in July. In October, Microsoft will turn up the heat by releasing Windows XP, which will contain a new version of Windows Media Player with CD burning capabilities.

The lifeline RealNetworks threw Napster could become its own.