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RealNetworks CEO Cites Cautious Optimism For MusicNet

Citing the powerful allure that Napster’s free service has had on millions of music fans, the head of MusicNet – a new music subscription joint venture backed by three of the world’s biggest record labels – sounded a note of cautious optimism Tuesday.

“It’s still unproven that people will go from paying zero to a reliable but paid service,” said Rob Glaser, chief executive of media software giant RealNetworks Inc. and acting CEO of MusicNet.

“I’m optimistic, but until it plays out in the marketplace, its not proven,” Glaser said, speaking at a Beverly Hills breakfast for entertainment executives and investors hosted by Constellation Ventures.

MusicNet – a joint venture between RealNetworks and AOL Time Warner Inc., which owns the Warner Music Group; Bertelsmann AG, owner of BMG Entertainment; and EMI Group Plc – was announced with much fanfare April 2.

RealNetworks, which makes such Internet media software as RealAudio and RealPlayer, will provide the delivery technology for the service and owns a 40 percent stake in Musicnet, which will license music subscription technology to other online services, ranging from tiny music sites to giants like AOL.

MusicNet was hailed as a big digital breakthrough for the recording industry which had focused much of its energies in the past year on copyright litigation against song-swap company Napster and online music company MP3.com

Industry Watchers Wonder If Its Too Late

Industry insiders have eagerly awaited subscription services as secure alternatives to Napster, which lets users copy digital music files from other people’s computers for free without the permission of artists, labels or publishers.

The labels successfully argued for a court injunction, requiring Napster to block trading of copyrighted songs. But many wonder now if the subscription services are coming too late after millions of fans for months have been getting all-you-can eat music for free on Napster.

“Until we’re out there with millions of users and revenues flowing end-to-end, it will be no more than just informed optimism,” Glaser said, referring to his expectations for MusicNet.

Glaser said he first began talking to the record companies six years ago. RealNetworks, began to build its secure streaming and downloading platform about a 1-1/2 years ago.

He said the Napster case was central to the talks. He said that once there was a ruling, the parties had a clearer picture of what “rights holders can assert” on the Web.

Glaser Tuesday said the venture was on track to begin tests in late summer or early fall and that he was still talks with other music companies Vivendi Universal’s Universal Music and Sony Music Entertainment about their participation in MusicNet.

Glaser reiterated that MusicNet was also open to licensing the MusicNet technology to Napster once it satisfies the labels’ legal, copyright and security concerns and launches a secure version of its services that pays royalties.

Just days after MusicNet was announced, Universal and Sony – which had previously announced formation of a similar service called Duet – said they had struck a deal with Yahoo Inc. to offer subscription services.

Glaser said he expects it may take time to get the two camps – Duet and MusicNet – on the same page, but expects that eventually they will work together.

He cited satellite television as an example in which two services, DirecTV and USSB, started out as competitors and then grew faster once they merged. DirecTV is a unit of Hughes Electronics .

MusicNet and has not disclosed what it will charge for music licenses or what kind of monthly fees users may face to be members of these subscription services.

“I think it has to be a lot less than cable TV,” Glaser told Reuters after the breakfast. “I think people will pay the equivalent of the cost of a CD for a monthly service,” he said.

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