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Thu, Feb 27, 2003 - Page 12 News List

America Online unveils music service

VALUE ADDED AOL's MusicNet hopes to draw US music lovers away from free song-swapping sites and give Internet users a reason to stay with the company

BLOOMBERG , NEW YORK

AOL Time Warner Inc's America Online, the world's biggest Internet service, will begin selling subscriptions to a new Internet music service today in an attempt to boost sales and retain its 27 million US customers.

Subscribers to MusicNet on AOL will be asked to pay as much as US$17.95 a month for access to 250,000 songs by performers from all five of the world's biggest music companies. The service, like its year-old rival Pressplay, seeks to draw music fans away from free song-swapping sites such as Kazaa.

America Online faces the challenge of reviving revenue growth by attracting users to its faster broadband Internet connections, which provide higher quality sound and video, while retaining the dial-up customers upon which the company built its business.

"This product both adds value to the dial-up connection and provides people an incentive to upgrade to AOL Broadband," Kevin Conroy, senior vice president of AOL Entertainment, said in an interview. "It also appeals to people who might never have been an AOL member."

America Online postponed MusicNet's debut on its service for a year because of technical problems and unfavorable reviews of its original design.

America Online is trying to compete against Microsoft Corp's MSN and other competitors for broadband Internet customers by offering exclusive content and other services.

It's also battling lower advertising sales and profit while lower-cost Internet services such as United Online Inc gain customers.

America Online lost 170,000 US customers in the fourth quarter, the company's first quarterly subscriber decline.

"They probably realize they won't be the No. 1 Internet service provider in the future," said Lee Black, an analyst at Jupiter Research. "What they are doing here is not only building out their online music strategy but trying to get new subscribers to come to AOL."

Shares of AOL Time Warner rose US$0.37 on Tuesday to US$10.43 in New York Stock Exchange composite trading. The stock has fallen 56 percent in the past year.

Executives at America Online Inc and Time Warner Inc promised investors two years ago that a combined company could use online strength to bolster entertainment businesses such as music.

America Online's US$124 billion purchase of Time Warner was the biggest acquisition ever.

The rollout of AOL Time Warner's new online music product stalled while the music industry has struggled to halt illegal music trading on free sites such as Kazaa, Morpheus and the now-defunct Napster.

America Online said it will offer members a 30-day free trial to MusicNet at AOL. Afterward, consumers can choose from three pricing plans -- US$3.95 a month for 20 streams, or song plays, and 20 downloads; US$8.95 a month for unlimited streaming and downloading; or US$17.95 a month for unlimited streaming and downloading plus the ability to copy 10 songs onto a CD.

America Online said it expects most customers to choose the US$8.95 package. Later this year, the service will offer music available for copying on a song-by-song basis for about US$0.99.

Music companies haven't perfected technology that can prevent illegal copying while permitting users to transfer downloaded songs between devices such as personal computers and portable stereos.

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