Umg, Realnetworks To Join Digital Fray

LOS ANGELES-Universal Music Group (UMG) and RealNetworks are the latest companies making moves into the already-crowded digital music distribution space.
UMG is expected to announce a new digital-distribution security technology in early May, according to sources. While key specifics of the technology remain unknown, a source says that the company is working with Sunnyvale, Calif.-based InterTrust Technologies to develop the digital rights management system contained within the technology. Sources say that BMG may lend its support to the UMG technology, which is being presented to the industry's Secure Digital Music Initiative (SDMI). A UMG spokesman declined to comment.
Digital-distribution security technologies are generally used by companies that aim to provide digital-distribution players via the Internet and other digital avenues. At press time, it was unclear how UMG's security technology would be applied.
Senior multimedia executives from UMG and InterTrust have been active participants in early discussions on SDMI, which aims to create a secure and cross-compatible digital download music solution. It is expected that UMG will play a key role in future discussions, since the company holds a large share of annual sales in the music industry.
In a separate development, InterTrust announced April 29 that it is also working with MP3 software company MusicMatch to create the MetaTrust-Certified MP3 Player. The player, due in the third quarter, will integrate InterTrust's digital rights management technology into music content when it is sold digitally through the player (BillboardBulletin, April 29). InterTrust has also teamed with Diamond Multimedia to add copyright protection to the Rio portable music player, which has been under legal fire from the Recording Industry Assn. of America (BillboardBulletin, April 26).
REAL MAKES ITS MOVE
Another significant digital distribution announcement is due Monday (3) from streaming media company RealNetworks, which will unveil a new Web-based music player that includes a controversial CD-to-MP3 copying feature.
The software product, which will debut at the RealNetworks Conference on Monday (3) in San Francisco, enables consumers to easily copy music CDs into digital music files in the MP3 format, according to sources. The product, which uses technology recently acquired when RealNetworks purchased Xing Technology (BillboardBulletin, April 14), is also expected to enable users to store music in RealNetworks' proprietary G2 format, which was previously used primarily for streaming.
The player will allow users to quickly make copies of music CDs at about three times the listening speed, according to sources. Users will then be able to combine music files from their own CDs with downloaded music from the Internet to create their own music playlists, which can then be transferred to portable music-storage media, including CD-R discs, flash media, and other devices. The new product, which will be free to consumers at www.real.com, will be compatible with playback of multiple music file types, including MP3.
Some consumer electronics and computer hardware companies are expected to announce support for the system. Specific partners were not identified at press time.
RealNetworks' large existing distribution base could help bring CD copying to a larger, more mainstream audience. RealNetworks already has 60 million registered users of its RealPlayer G2 streaming software and benefits from distribution deals with Netscape and America Online. The technology company is also expected to promote the new product to its existing user base and on its Web site.
Even though RealNetworks' product is not the first CD-copying software, the wide distribution of the product concerns some label executives.
"We have an issue with that," says one executive, who declined to be identified. "It is understandable that RealNetworks wants to include MP3 playback-at this point, that's a competitive necessity for them. But what disturbs us is that they are making it a bit too easy for consumers to rip CDs into the unprotected format. That's almost like "Piracy 101' for consumers that might not normally copy their CDs."
The product is expected to feature the copy-protection Serial Copyright Management System, but that feature can be disabled by users, according to a source.
While some major music companies are mulling the opportunity to participate in the launch of the project, none had committed by press time.
In the meantime, RealNetworks has been approaching artists and management companies directly for content.
For example, the company plans to offer an exclusive downloadable track from the Offspring, a Columbia act, for the launch of the promotion. The track, "Beheaded," was previously released by the Offspring on its own Nitro Records label before the band signed with Columbia. A Columbia Records spokesman declined to comment on the development.
Several indie labels, including Sub Pop and Rykodisc, are also expected to participate in the launch of the technology.
possible, but their focus has been on Alliance and the nature of Alliance's business."
Last year, Alliance generated about $400 million in sales. This year, according to its business plan, the company is expected to hit the $450 million sales mark.
Alliance has rebounded nicely from its Chapter 11 reorganization, label and distribution executives say. Alliance filed for Chapter 11 protection July 14, 1997, and the company underwent a successful reorganization last August, which saw the banking consortium that provided its secured revolving credit facility wind up with 87.5% ownership. The remainder was split between management and unsecured debt holders.
But sources say that the banking consortium-which included Chase Manhattan Bank, Bank of America, and First National Bank of Chicago-was anxious to cash in its stake. So Alliance management embarked on a quiet search to find a financial owner to replace the banks.
Going that route allows Alliance management to maintain its say in the company's destiny, as opposed to putting the company up for sale, which could have resulted in a strategic player buying the company. Furthermore, it places Alliance under the stewardship of more patient money (Billboard, May 1).
Some industry financial executives expect that eventually Alliance will try to do a public offering, after the current management team establishes more of a track record. However, Weisman says, an IPO is not currently a company consideration. "We don't rule out any options, but the reality is [that] we are focused on maximizing our profitability and creating a platform to grow the business. If going public helps us, it will be given consideration."
Industry executives reacted positively to the Alliance announcement. Says Pete Jones, president of BMG Distribution, "Alliance management worked hard to get this company back in shape, and any time an investor wants to invest in this industry, it's a good thing."