MTV Networks, RealNetworks, Verizon announce new music service

SEATTLE -- Viacom Inc.'s MTV Networks and digital media company RealNetworks announced Tuesday a digital music joint venture that will compete with Apple's dominant trinity of the iTunes store, iPod player and iPhone.

MTV will merge its Urge music service into the Rhapsody offering from RealNetworks Inc. The new offering will be accessible on computers and music players and integrated with Verizon Wireless' VCast multimedia service for cell phones.

It will be run by a new company, Rhapsody America, and MTV will heavily market the service starting in September and will provide music playlists and other programming.

The companies did not say how much the new service will cost. Rhapsody currently charges subscribers $12.99 a month for unlimited listening and sells individual tracks for 99 cents, with a discount for subscribers.

Executives from the three companies said in a conference call that RealNetworks owns a majority of the new venture, though MTV's stake is "substantial." The relationship with Verizon Wireless, owned by Verizon Communications Inc. and Vodafone Group PLC of Britain, is exclusive and long-term, the companies said.

Further financial details were not provided.

Michael Bloom, previously the general manager of Urge, will head up the new company. In an interview, he said Urge's existing customers will be migrated to Rhapsody America over time, but would not give further details. For now, Urge customers can use their accounts on Rhapsody and enjoy access to both services.

So far, no other company has come close to rivaling Apple Inc.'s successful combination of music store and music player. Microsoft Corp. worked with MTV to build Urge into its Windows Media Player software, but after Urge launched last year the software maker shifted focus to its own Zune music player and store. So far, the Zune has captured only a tiny sliver of the digital music market.

Early wireless music programs were hindered by the relatively tiny amount of storage space available for music on cell phones.

John Stratton, Verizon Wireless' chief marketing officer, said in Tuesday's conference call that phones with 8 gigabytes of storage -- comparable to the biggest iPhone -- would be available by the end of this year.

Stratton also said that phones with 16 GB of storage should be ready by mid-2008, and he hinted that the service will include over-the-air downloads of songs straight to cell phones.

RealNetworks also began testing the sale of songs from Universal Music Group's catalog without copy-protection restrictions Tuesday, joining several other retailers, including Wal-Mart Stores Inc. That would allow such songs to play on the market-leading iPod. Rob Glaser, RealNetworks' chief executive officer, said music free of such restrictions should go mainstream in 2008.

That fits with the companies' un-Apple-like strategy of running a music store that can connect with any number of different devices. Apple's copy-protection technology generally limits songs bought on iTunes to its own iPods and iPhones.

"This is a close collaboration of partners that believes in the idea of openness," Glaser said. "Consumers should get to pick what mobile phone they want and get great music on it."

And in that vein, the executives said in an interview that they're not planning to launch an "iPhone killer."

"This is not somehow about how we collectively compete with the iPhone," said Verizon Wireless' Stratton. "I think that's a very limiting definition."

Forrester Research analyst Josh Bernoff said Rhapsody America was a clear challenge to Apple.

"It is an attempt to create a powerhouse that's going to be able to compete with iTunes," Bernoff said. "It's going to be very tough to compete that way. Many other companies have tried to do that and failed, including the limited success that MTV and Rhapsody have had separately."