To a large extent, AOL's decision to offer the service for its mainstream membership is an indication that the online music subscription business is finally ready -- or almost ready -- for prime time, McNealy said. It's also one of the first tangible instances in AOL's attempts to persuade subscribers to start paying for more premium services. Executives have recently said the company hopes to become more of a hub for premium content, like an Internet HBO (Home Box Office). AOL's reticence in the face of earlier technology was in large part a reflection of its own subscribers' skepticism toward the first generation of offers, executives said. The company, which is a part owner of the MusicNet service, had looked at that technology beginning in late 2001, and had ultimately decided not to use it. "AOL didn't really have large say in how that product was built," said Chamath Palihapitiya, executive director of product strategy for AOL Entertainment. "When we put it into usability testing, feedback wasn't very good. Ultimately we felt that the only way to do it is if we built it." The company's software engineers have subsequently spent the past seven months working on the MusicNet technology to integrate it into other portions of the AOL service, as well as polling subscribers to see what features they wanted most out of a subscription service. While still limited by the licenses available from labels -- a Kazaa-style free service is not an option, for example -- the new service substantially reflects that subscriber feedback, Palihapitiya said. Pricing and features of the new service will be similar to rivals. Subscribers will be offered three tiers. For $3.95 (£2.50) a month, subscribers will be able to download 20 songs and listen to 20 streams. An $8.95 (£5.70) tier will provide access to unlimited downloads and unlimited streams. For $17.95 (£11.38), subscribers will keep the unlimited access, but be able to burn 10 songs per month to CD. Later in the year, the service will add a middle tier with five burns per month and the ability to pay by the burn. As with previous versions of MusicNet, the songs downloaded to a hard drive will be locked or "tethered" to that computer, and can be played only as long as the person continues to subscribe to the service. In the first version released by AOL, music downloaded or ripped from other sources can not be played using the same software, but later releases will be tied into AOL's media player. Perhaps the biggest limitations on the service is that it is tied directly to AOL memberships, and searching and downloading content can be done only while logged into AOL. While that still can be done at the workplace, it will require having AOL software loaded and tapping into AOL's service, a step some corporate IT managers discourage or forbid. Boost for MusicNet
AOL's long-delayed decision to launch the service is also good news for MusicNet, the technology company jointly owned by RealNetworks, AOL Time Warner, Bertelsmann and the EMI Group. After opening its doors with much hype in 2001, MusicNet has badly trailed the progress of its rivals. The company's technology has been distributed only through RealNetworks' RealOne service, with offering 100 downloads and 100 burns for $4.95 (£3.14), or the same thing with Net radio services added for $9.95 (£6.31). With severe limitations on what could actually be done with the music, the service was criticised by reviewers and many listeners, and MusicNet itself has little good to say about it today. "We feel like (the AOL launch) is the start of MusicNet in earnest," said MusicNet General Manager Ellie Hirschhorn. "This is first launch of our 2.0 software, which we think is a real improvement, a true debut in the marketplace with a big, sophisticated distributor." RealNetworks is continuing to use the older version of the service for now, but is planning to upgrade to MusicNet's newer technology sometime over the next few months. "What we really see is that services like radio are really popular," said RealNetworks spokeswoman Erica Shaffer. "We feel that the music services have a long way to go. They've come a long way, but they still have a long way to go." The only tangible evidence of any of the subscription service's success so far has come from RealNetworks' quarterly financial statements. Real, which still owns 40 percent of MusicNet, said its share of MusicNet's fourth-quarter 2000 loss amounted to $1.19m (£755,000), and that its share of total MusicNet's total 2002 net loss was $6.32m (£4m). Schaffer said those numbers were not necessarily equivalent to 40 percent of MusicNet's total losses, however. AOL and its rivals still have a steep hill to climb before persuading committed Kazaa users to move to a paid service, GartnerG2's McNealy said. "(The first generation) missed on service and missed on licenses," McNealy said. "After all the hype, there was a backlash, and the early adopters who really wanted a music service walked right back to Kazaa."
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