MTV loses Urge, partners with Rhapsody

New service exclusive on Verizon Wireless, aims at iTunes and iPhone

MTV Networks today announced it would abandon its Urge digital music store and instead roll it into RealNetworks Inc.'s Rhapsody subscription service.

The joint venture of RealNetworks and MTV, the latter a division of entertainment company Viacom Inc., will be known as Rhapsody America, said Van Toffler, the president of MTV Networks, in a conference call with reporters. "We are getting together to offer a new digital music experience," Toffler said.

Urge, which was launched with much fanfare as a joint deal between MTV and Microsoft Corp. in January 2006, struggled to gain traction against Apple Inc.'s market-leading iTunes. After Microsoft debuted its Zune music player late last year -- along with a Zune-specific store -- Urge withered.

"It just didn't seem to be going anywhere," said Josh Bernoff, a Forrester Research Inc. analyst. "Not after Microsoft decided to go in another direction [with Zune]. I think MTV thought, 'Well, if you're gonna go off and do that...'"

Toffler, in fact, was noncommittal about continuing to support Microsoft's music software. "Urge will be on Media Player 11 until further notice," was all he would say in answer to reporters' questions.

MTV and RealNetworks also touted an exclusive deal with cellular carrier Verizon Wireless that will integrate their Rhapsody America with Verizon's existing VCast music service. Toffler and Rob Glaser, president of RealNetworks, however, refused to go public with the financial terms of the Verizon agreement, or the length of the deal.

The executives also declined to set a launch date for the new service.

Bernoff said Rhapsody America won't threaten iTunes but noted that it may enable the partners to squeeze a little more market share from Apple's grip. "It's going to take the unlocking of DRM [digital rights management] first of all, to unseat iTunes," he said. "That would uncouple iTunes from the iPod. And then there has to be a device as successful as the iPod waiting. I don't see one yet.

"But this [deal] should get them a little more market share."

During the call, RealNetworks' Glaser said this year would prove to be a "tipping point" on DRM. Yesterday, Glaser's company said it would soon start a six-month trial selling DRM-less tracks from groups signed with Universal Music Group.

"It will be a tipping point," agreed Bernoff, "but not because Glaser said so. DRM just gets in people's way, and it has no benefit to the labels. They're beginning to understand that."

All three of the companies involved in today's pronouncement come out winners, Bernoff said, although "winning" in this case is relative. "It's good for all of them, but what it really means is that it's more likely they can compete [against Apple]."

Verizon's part in the three-way deal seems the clearest. "This is definitely a move against Apple['s iPhone] and AT&T," said Bernoff. "This is their iPhone strategy."

Copyright © 2007 IDG Communications, Inc.

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