AOL favourite to muscle in on Napster's territory

While Napster Inc.'s lawyers grapple with the site's increasing legal headaches, rivals are salivating at the prospect of gobbling up Napster users. A gaggle of opportunists - from obscure start-ups to major music labels - are building music-subscription services of their own to rival the model that Napster plans to launch in July. And in the race to dominate the world of digital music distribution, one contender stands out: AOL Time Warner Inc., which plans to launch its own service "in 2001", according to an AOL Music spokesperson.

The media behemoth is in a strong position - and not just because it owns Warner Bros. Music Group Inc., one of the five biggest record labels. With 27 million paying customers, AOL knows the business of online subscriptions inside out. The company recently hired Kevin Conroy, former chief marketing officer and president of new technology at major label BMG Entertainment Inc., to head its AOL Music division. Add to that the marketing muscle that comes with owning a plethora of media outlets - including dozens of pop-culture magazines such as Entertainment Weekly - plus one of America's leading cable operator aa well as one of the most popular online MP3 players, Winamp, and you've got all the elements of a digital music powerhouse.

AOL Time Warner officials won't give specifics on the company's music-subscription plans. But a study commissioned by AOL late last year (see bottom chart) suggests that it is working on a service that would let consumers stream music from a central server and download a limited number of songs. Conroy declines to comment on the study, saying only: "AOL Music is focused on creating a single integrated platform that will make it easier and more convenient for consumers to discover, experience and own music across our properties."

That's exactly what AOL members want, according to the poll of 461 subscribers conducted by the Benenson Strategy Group. Forty per cent of the respondents said they'd try a music subscription service - especially if it offered the kind of variety that made Napster the darling of 60 million users.

But even Napster isn't delivering that variety now. This month, the California-based company bowed to legal pressure and began filtering copyrighted songs. But Napster's popularity was due largely to the breadth of its library, which until last week included almost any song ever recorded. A service that offers only a few select tunes - like the service being developed by Napster and Bertelsmann AG, the BMG parent funding Napster's development of a subscription model - will have a hard time attracting a critical mass of users. "You don't go to Tower Records or HMV and only have a percentage of the records in the marketplace," says Fred Davis, a partner with entertainment law firm Davis, Shapiro and Lewit.

Not surprisingly, AOL Time Warner is at work hammering out deals with its own music subsidiary, Warner Bros. Music Group Inc., and with the other four major labels: BMG, EMI Group PLC, Sony Music Entertainment Inc. and Universal Music Group Inc. - all of whom are working on their own distribution projects. But AOL may have an edge in Kevin Conroy, who lends credibility to the project.

"He really understands and has sensitivity to copyright and content and the need to explore new avenues to distribute music," says Davis. In other words: Napster, watch your back.

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