PressPlay May Deal Microsoft In.

By Richard Menta - 7/11/01

The rivalry between Microsoft and Real Networks in the digital audio arena has been running hot the last few months as both sides jockey for control of the technology standards for the medium. It looks like the burner is about to go up another notch.

Real took a lead earlier this spring with the formation of the MusicNet alliance with three of the five major recording labels including Bertelsmann, AOL Time Warner and EMI. MusicNet is one of the record industry's two answers to Napster. The other is a competing service called PressPlay (formerly Duet), a partnership between the remaining two labels, Universal and Sony.

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MusicNet will use an updated version of Real's audio technology to deliver secure music to subscribers, an agreement that gives Real Networks a solid foothold from which to work its way as the standard for the recording industry and their Net products.

With that revelation, Microsoft is courting PressPlay. Unless they want to be cut out - and Microsoft is not one to be cut out - it has to work hard to sell itself to that part of the industry not involved with MusicNet. Microsoft has been touting its secure music system to the major labels for a while now with mixed results. If they want to stay in the game, PressPlay is their best opportunity.

WebNoise is reporting that Microsoft and PressPlay are close to a deal where Microsoft will market the PressPlay offerings on its MSN Music service that launched last April. This deal foreshadows a more direct involvement by Microsoft and its Windows Media technology when PressPlay finally launches.

Microsoft offers PressPlay more than just technology. With its Windows XP operating system due to be released about the same time, Microsoft is certainly dangling the prospect of a PressPlay icon on the default desktop. That's the type of marketing PressPlay can use as it goes head-to-head with MusicNet. Both services will offer streaming music when they launch at the end of summer, but only MusicNet will offer music downloads right off the bat. PressPlay will not add that ability until later, putting it at a slight disadvantage.

PressPlay has already signed a deal with Yahoo, which will do for it in terms of visiblilty what AOL will do for MusicNet. That deal puts PressPlay on a more even keel with MusicNet. A Windows desktop deal would move it ahead.

This could be a win-win deal for both should a union be consummated. What has slowed up the action for Microsoft is its reputation for hard business. No one is more familiar with that than the record industry who are long time practitioners of the art of monopoly/oligopoly. They are wary of the company's power, a power they know Microsoft would not be afraid to wield should Windows Media eventually become the standard.

The music industry also knows Windows Media can't be the standard unless they first let them in. This no doubt is reflected in the negotiations. Big Music knows they have something Microsoft wants. The problem is Microsoft has something they need.

But which secure format to use is only part of the big picture for the record companies. Neither MusicNet nor PressPlay will offer the music of all the major labels, which puts a considerable question mark on the viability of both services. This is especially true when faced with the fact that free music from the entire music industry is available through the likes of Music City, Audiogalaxy, Gnutella and other Napster clones appearing throughout the world.

As we have written in several past articles, the offerings that these services have leaked so far don't seem to be very compelling. Worse yet, the subscription rates they are suggesting are severely overpriced with a CD's worth of music selling for the equivalent of $20 a year (you don't buy songs on these services, you rent them in 30-day increments. Stop payment and the files expire).

Microsoft's and Real Networks' investment in these two music services will only bear fruit if the Net audience is willing to buy into them. Bad PR over the Napster and trials has developed a significant distrust between the music industry and the record buying public. There is a strong risk the consumer will rejects these offerings and all the effort and dealmaking invested in them.

If that happens it will only further tighten the MP3 formats dominance online, the true digital music standard of the Net.

Both Real and Microsoft are betting that MP3's nature as an unsecure format will lead to its undoing because it will never be adopted by the record companies. The flaw in that argument is that online music was never a for-profit creation of the music industry, but a massive grass roots effort of ripping and trading MP3 files among average people. At risk of sounding like a marxist, it is the people who will select the format. They can dictate this to the record industry by simply closing their wallets.


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