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Published: 8/22/2007

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MTV, RealNetworks Join to Battle iTunes

The Wall Street Journal

MTV, RealNetworks Join to Battle iTunes
By ETHAN SMITH and NICK WINGFIELD
August 21, 2007; Page B5

In a bid to create a stronger competitor to Apple Inc.'s market-dominating iTunes Store, Viacom Inc.'s MTV Networks announced Tuesday that it is merging its online digital-music offerings into a joint venture with RealNetworks Inc., the company behind the Rhapsody subscription digital-music service.

Verizon Wireless, a venture of Verizon Communications Inc. and Vodafone Group PLC, has signed on to supply mobile distribution for the joint venture's content. That could provide additional leverage against Apple, which angered many mobile carriers and consumers with the decision to make its iPhone compatible only with AT&T Inc.



MTV and RealNetworks join forces to battle iTunes. S&P's media and entertainment analyst Tuna Amobi on the new venture.

The move appears to spell the end of MTV's Urge digital service, launched in partnership with Microsoft Corp. last year. Microsoft has been heavily focused on its own Zune service in recent months, to the apparent detriment of Urge, which had few subscribers. MTV itself no longer invested significant resources in Urge after Zune's debut, according to a person familiar with Urge.

The new company will be called Rhapsody America. MTV Networks will contribute cash, a five-year note for $230 million and its Urge subscribers to the venture, according to a filing with the Securities and Exchange Commission. RealNetworks, which will contribute cash and its Rhapsody subscribers, will retain a majority ownership stake in the venture.

Teaming up with MTV could give Rhapsody a broader reach, thanks to the music channel's strong marketing and vast reach in cable television and other media. MTV plans to promote the service heavily on its television channels. A person familiar with the matter said MTV and Seattle-based RealNetworks have been discussing a partnership for months and were eager to complete a deal before MTV's Video Music Awards ceremony on Sept. 9, during which they hope to promote the partnership.

The pairing is the latest effort by RealNetworks to raise the profile of Rhapsody, a service for which it charges users a monthly fee starting at $12.99 to listen to an unlimited number of songs. The companies did not say how much the new service will cost.

The venture is to be headed by Michael Bloom, who currently heads Urge for MTV Networks. MTV is to contribute editorial content, including music blogs. Mika Salmi, the president of MTV Networks' global digital media, is a former RealNetworks executive.

MTV has been investing heavily in digital technology, including plans announced last week to invest at least $500 million in games, on top of acquisitions like that of Harmonix Music Systems Inc., the developer of the Guitar Hero game series.

Write to Ethan Smith at ethan.smith@wsj.com and Nick Wingfield at nic