IBM, RealNetworks Join to Develop Net Music System

Setting the stage for a blistering battle against Microsoft to win the favor of an Internet-wary recording industry, IBM and RealNet- works will announce today that they will work together to develop a system for distributing music over the Internet that blocks piracy.

The deal brings together IBM, which is close to launching a pilot online music distribution project in cooperation with five major record companies, and Seattle-based RealNetworks, which has a commanding lead in the market for software used to play audio and video over the Internet. RealNetworks will provide IBM with new technology to help consumers download, organize and play their music on computers and various consumer devices.

“We have the most active consumers,” said Rob Glaser, chief executive of RealNetworks, who claims that more than 50 million consumers use its media player to listen to music or watch video. “IBM has the relationship [with the record labels].”

The announcement comes just as Microsoft is set to demonstrate its competing format, MS Audio 4.0, at a high-profile event Tuesday at the House of Blues in Los Angeles, with appearances by musicians such as blues guitarist Buddy Guy.

Some industry executives say the jockeying between the Real/IBM team and archrival Microsoft is an irrelevant sideshow because a music industry group called Secure Digital Music Initiative, or SDMI, will make the final decision on which technology to use early next year.

“SDMI is the ultimate arbiter of the open standard,” said Cary Sherman, senior executive vice president of the Recording Industry Assn. of America, pointing out that 110 companies are now involved in the process. “Hopefully that standard would support IBM technology, Microsoft technology and RealNetworks technology. Consumers shouldn’t have to have a half-dozen players to listen to a half-dozen artists.”

But industry analysts said a year is a long time in Internet terms, and they expect the leading technology companies to scramble to establish their technology as a standard in the marketplace before the industry gets around to making its decision.

At issue are the way in which a piece of music is compressed for distribution over the Net, which technologies are used to sell the music and prevent it from being pirated, and how the music is played on personal computers or a range of portable devices.

Many music sites already use a technology called MP3 to deliver music over the Internet. But the major record labels, fearing piracy, have generally refused to participate in that market and have cracked down on Web sites that offer their music without permission.

IBM is offering an end-to-end approach it calls an electronic music-management system that would allow a record company, for example, to sell consumers rights to play a record a half-dozen times or offer a subscription to all the company’s products.

Sony Music, BMG, EMI, Universal Music and Warner Music have agreed to participate in a six-month trial starting in June of IBM’s system during which they will convert 2,000 albums into IBM’s digital format for distribution over the system.

Richard Selvage, IBM’s general manager for global media and entertainment, is careful to point out that its relationship with RealNetworks isn’t exclusive. However, he said RealNetwork will enjoy “an advantageous position in understanding the workings of the business” by participating in the market trial with IBM.

RealNetworks, which has been fighting back in the face of an aggressive onslaught from Microsoft, would also get a closer working relationship with the record companies, a relationship Microsoft appears to have trouble cultivating.

“Microsoft has a historically difficult time making friends with larger industries,” says Mark Mooradian, senior analyst at Jupiter Communications, a New York-based market research firm.

Microsoft is counting on what it considers superior technology for downloading music and its power to distribute its technology widely through it huge share of the Internet browser market.

The company claims to have compression technology that allows music to be stored in half the space of the currently popular MP3 format and can therefore be downloaded in half the time.

Microsoft is also expected to use technology it acquired through its $15-million purchase last month of Buffalo, N.Y.-based Reciprocal. The technology would allow record companies to include code in their music so consumers who download it must first buy a “key” to unlock it before playing the music.