Deals Set Stage for Online Music Firms

A spate of licensing deals this week finally will allow an array of online music companies to offer songs from most or all of the major record labels, setting the stage for them to compete on the features they offer instead of on the limitations of their catalogs.

Analysts say notable shortcomings remain in all the authorized services that could hurt their appeal and stunt innovation. Nevertheless, online music executives say that after two years of scrambling for licenses, they finally have reached the starting line for real competition.

In particular, they say the fights will be over how to package songs, help consumers navigate online collections and extend services from the computer to living room stereos, portable devices and cars. They’ll also vie for partnerships with Internet providers, cable TV companies, retailers and other distributors that can help sell their services.

“There’s a lot of room for experimentation, and I don’t think consumers necessarily know what is the best way to consume online music yet,” said Dave Williams, vice president of product management at Listen.com Inc.

By the end of the week, the subscription music services from MusicNet Inc. and Pressplay are expected to join Listen.com in offering five major record companies’ music as well as songs from large independent labels.

Rival services from FullAudio Corp., MusicMatch Inc. and Streamwaves have deals with all the major labels except those owned by Sony Corp., and they expect to fill that hole by early next year.

Meanwhile, Vivendi Universal subsidiary Emusic offers a subscription downloading service with songs from hundreds of independent labels and older tunes from Universal Music Group.

The companies’ main competition still comes from online pirates, and concerns about piracy dictate many of the licensing terms offered by the labels.

“There’s a fear and skepticism of the digital arena that permeates the music industry,” said analyst Steve Vonder Haar of Interactive Media Strategies, a technology research group. “And that slows innovation by the record labels.”

So far, the company with the most subscribers appears to be MusicMatch, which has more than 100,000, followed by Emusic, which has 70,000.

Although their differences are narrowing with each new deal, online companies offer consumers at least three subscription plans for music: online jukeboxes, sampling services and full-service tools for building music collections.

For $10 or more a month, the full-service offerings enable consumers to hear music on demand and download the songs they would like to play when they are not online. They can burn permanent copies onto a compact disc for an additional fee.

A pioneer in this category is Los Angeles-based Pressplay, a joint venture of Sony and Universal Music Group. Pressplay plans to announce today that it has obtained the rights to music from its fifth major label: AOL Time Warner subsidiary Warner Music Group.

Rivaling Pressplay are Full- Audio of Chicago and Los Angeles-based MusicNet, which is owned by EMI Recorded Music, AOL Time Warner, Bertelsmann, Zomba Recording Corp. and RealNetworks Inc. MusicNet is expected to announce this week its transformation into a full-service music provider with burnable downloads from all five major labels.

The jukebox services let consumers hear music on demand for $10 to $15 a month. The main players are Listen.com of San Francisco and Streamwaves of Dallas, both of which announced deals Wednesday with EMI to let subscribers burn songs onto CDs.

Starting in December, San Diego-based MusicMatch plans to offer a variation on an online jukebox that lets subscribers listen to all the music from more than 8,000 different artists or bands on demand but not to burn it on CDs. The service, which will cost about $5 a month, is designed to help consumers discover music, said Peter Csathy, MusicMatch’s president and chief operating officer.

Jay Samit, a senior vice president at EMI, said his company was trying to spur innovation by striking deals with a broad selection of online companies.

“It’s still early,” he said. “It’s an evolutionary process.”