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MusicNet Music Service Launches on AOL

America Online on Tuesday said it would offer MusicNet to its 27 million U.S. subscribers, the broadest appeal yet to a mainstream audience by an online commercial music service.

America Online’s entry into the music subscription race is viewed by analysts and even competitors as a positive development for online music services, which have struggled to gain a foothold in an area dominated by file-swapping.

MusicNet is owned by EMI Group Plc, Bertelsmann AG and Warner Music, which, like America Online, is owned by AOL Time Warner, three of the world’s largest music companies.

By sending out an invitation to AOL’s massive online audience, the hope is that people who have subscribed to AOL, many of which have may not even dabbled with peer-to-peer services like Napster, will sign up, executives said.

“This is the biggest digital music guinea pig to date. The entire music industry is going to watch this one closely for the next six months,” said GartnerG2 analyst P.J. McNealy.

“Over the past year, AOL has led the way in making online music mainstream, and we’ve designed MusicNet service to be easy and convenient,” said Kevin Conroy, senior vice president and general manager, AOL Entertainment, a unit of AOL Time Warner.

Music executives and analysts say the industry is in need of a fix as its very foundation of selling CDs is eroding fast due to free song-swapping services like Kazaa.

As of mid-February, sales of U.S. albums were down over 10 percent to date, on the back of a decline in 2002. By contrast, sales of blank CDs jumped 40 percent in 2002.

Job cuts and losses have piled up at many of the large labels, with merger speculation becoming a common topic in the press and around water coolers.

“Peer-to-peer services still thrive, but having AOL come into the picture helps elevate the knowledge of paid services in the marketplace,” said Lee Black, analyst with Jupiter Research.

So far, MusicNet and Presslay, another major label-backed service owned by Vivendi Universal and Sony Corp, have lured only an estimated half a million users to date since launching on a variety of other distribution channels late last year. By contrast, Kazaa users number more than 60 million.

Launching with more than 250,000 songs and with new additions each week, MusicNet includes music from all five major labels and exclusive content from some AOL music programs. It lets subscribers find and listen to music, manage their music library and burn CDs.

It will be available to AOL members, through several MusicNet options beginning with a “basic” $3.95 a month for 20 streams and 20 downloads, that would come on top of an AOL membership fee, starting anywhere from $15 a month and up.

While Conroy and others believe that offering these services is the first step in the music industry’s reinvention, he declined to speculate how many of America Online’s subscribers he expected would sign on.

Because most users of AOL are still largely dial-up connections – which transmit data and song files much slower than broadband connects – Conroy said AOL has designed the system and architecture in a way to enable dial-up customers to download songs in half the time it would takes dial-up users of services like Kazaa.

Downloading a song on a dial-up connection via Kazaa takes an estimated 12 to 22 minutes, according to industry sources.

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