iTunes facing online challenge

The Baltimore Sun

In what could be one of the most formidable challenges to Apple Inc.'s iTunes, the owner of MTV is teaming up with Verizon Wireless and RealNetworks Inc. on a new online music service.

The service will combine MTV's floundering URGE digital music business with RealNetworks' Rhapsody music subscription business, through which users can access all the music they want online for $12.99 a month and up.

In a conference call with reporters yesterday, RealNetworks chief executive Rob Glaser said the revamped Rhapsody is a major step toward creating what he calls a one-of-a-kind "jukebox in the sky" for subscribers using computers, cell phones or other portable devices.

Glaser and other executives, however, declined to specify when the revamped service would launch on Verizon, how much Verizon would charge users to access it, or how long the exclusive arrangement with the wireless company would last.

The new partnership comes two months after Apple rolled out its heavily hyped iPhone, which lets users access their iTunes digital music libraries exclusively through AT&T; Inc.'s wireless service.

Rhapsody works differently than iTunes.

With iTunes, users typically pay 99 cents per song or $1.99 for music videos and can transfer them - with some limits - to Apple's iPods and iPhones or burn them onto a disc.

With the revamped Rhapsody, users will be able to access a huge library of music - along with MTV videos, music news and other media - from their computers for a monthly fee. If they pay extra, they can transfer their purchases to portable players or CDs or access them on cell phones through Verizon's V CAST service. V CAST users can already buy songs on their cell phones for $1.99 each.

Despite their combined corporate heft, the companies involved will have a tough time making a dent in Apple's digital music empire, predicted Phil Leigh, an industry analyst and president of Tampa, Fla., research firm Inside Digital Media.

"This is going to impact Apple about like a speeding car hitting a gust of head wind," Leigh said.

Through a spokesman, Apple declined to comment.

Apple is by far the leader in the $1 billion digital music business. Most U.S. consumers, meanwhile, still haven't tuned in to the idea of using their cell phone instead of an iPod or other device to listen to music, said Jupiter Research analyst David Card.

The new Rhapsody venture "is a big deal, and it's definitely a powerful combination, but I think Apple has plenty of time to react if they want to," Card said.

Microsoft Corp., which has a much smaller share of the digital music business with its Zune player and service, may be impacted more, some analysts said.

MTV and corporate parent Viacom International Inc. are effectively giving up on a separate joint venture with Microsoft that resulted in last year's launch of URGE.

According to a Securities and Exchange Commission filing, MTV and Viacom will contribute $230 million plus other assets in exchange for 49 percent of a new entity called Rhapsody America. RealNetworks will own the remaining 51 percent.

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