MTV, RealNets, Verizon join for d-music service

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DENVER -- MTV Networks, RealNetworks and Verizon Wireless have joined forces to create a new, integrated digital music service that will replace the service each company currently offers.

The core of the offering -- aimed at competing with Apple's iTunes -- is a joint venture between RealNetworks and MTV, under which the two will merge their respective digital music services into one. The venture will be called Rhapsody America, and the combined service will retain the Rhapsody name.

RealNetworks will own 51% of the company, with MTV owning the remaining 49%. Under the terms of the deal, MTV will commit $230 million over five years for "hard advertising" purposes, as well as "free" promotions in MTV programming and other integrated marketing efforts.

Executives declined to say when products associated with the partnership would be launched, but all parties involved are planning a strong marketing push behind the venture, kicking off Sept. 9 during the MTV Video Music Awards.

The move marks the end of MTV's Urge service, which was launched last year with Microsoft Corp. Shortly after Urge debuted, Microsoft launched its digital music player and service Zune.

Urge.com now redirects to a Rhapsody splash page where existing Urge subscribers can use their login information to access the Rhapsody service. In the coming weeks and months, Urge subscribers will be asked to replace their existing Urge program -- currently embedded in Windows Media Player 11 -- with Rhapsody's software.

However that's not to say the Urge experience goes away. Michael Bloom, who oversaw MTV's music service, will serve as GM of the venture, and Rhapsody will absorb much of Urge's editorial staff, playlists, programming and music recommendation services. Although Urge struggled to attract much attention from consumers, critics praised the service's blogs, reviews and recommendation services.

The result of the integration will be a complete transformation of the existing Rhapsody service. Rhapsody is not simply providing the backend technology to a new MTV service, like what it does with Best Buy's digital music store. Rather, it is creating an entirely new service that Rhapsody and Urge subscribers will share.

Verizon Wireless, a venture of Verizon Communications and Vodafone Group, will become the exclusive wireless distributor for Rhapsody America's digital content once it is up and running.

"The pieces are such that we think one plus one plus one equals big -- certainly more than three," RealNetworks CEO Rob Glaser said during a conference call Tuesday.

The new service also will replace Verizon's digital music offering. The VCast Music store, which allows users to purchase and download tracks from mobile phones, is based on technology from a company called WiderThan, which RealNetworks acquired last year. The service delivers one copy of a purchased song to the mobile phone and another to the user's computer.

Verizon customers also can buy music directly from their computer via a Verizon-branded service, which recently scored exclusive rights to the entire AC/DC catalog. Under this deal, Verizon will replace this existing PC-based service with the new Rhapsody client.

Songs purchased from Verizon phones will then appear on the Rhapsody online service as well. Additionally, Verizon plans to release mobile phones compatible with the Rhapsody service so users can transfer subscription music to their devices as well.

In time, Rhapsody and Verizon hope to let wireless users download music on a subscription plan over the air as well, with the monthly Rhapsody fee added to the Verizon bill. However, sources at both companies said the technical and billing hurdles associated with such capability likely won't be resolved for at least a year.

The partnership represents another attempt by tech and media companies to snatch market share from Apple, whose combination of iTunes service and iPod has been hard to beat.

"It will be highly visible, and it has a chance of eking out some market share," Forrester analyst Josh Bernoff said. "But it will be awfully hard to push out iTunes."

Antony Bruno is a contributor to Billboard. Reuters contributed to this report.
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