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Ups--And Downs--In Online Music Arena

Fee-based subscription services may be one step closer to viability, but Napster is questioning the legitimacy of two of them.

The online music-service arena just got a little closer to reaching a notable milestone, building critical mass with all five major recording companies offering their music catalogues in one online service. But online music upstart Napster Inc. is questioning whether some online music services are in fact monopolies and wrangling with the Recording Industry Association of America over digital music copyright issues.

Listen.com on Monday said it has a nonexclusive licensing agreement with AOL Time Warner's Warner Music Group. Subscribers to Rhapsody, its online music service, will have access to Warner catalogue recordings. With this latest deal, Listen has four of the five major recording companies on board--its existing agreements are with Sony Music Entertainment, Bertelsmann's BMG Entertainment, and EMI Recorded Music. Gartner analyst P.J. McNealy says this puts Rhapsody in the lead for the race to land all five companies, an accomplishment that is "absolutely crucial" for fee-based online music subscription services to be viable. The other two online music competitors, MusicNet and Pressplay, both offer recordings from three of the major companies.

But do MusicNet and Pressplay, which were set up by several large recording companies, represent violations of antitrust law? Napster, which was forced to shut down its free online music-sharing service in July and is in the process of launching its own fee-based subscription service, thinks so. And a federal judge Friday said Napster could pose this query, as well as question the validity of music-industry copyrights.

It's favorable news for Napster, but not an overwhelming victory, observers say. "Nothing short of a miracle is going to turn Napster around and make it a profitable company anytime soon, but it would be very easy to mess up the record labels by delving a little too deeply into their business practices," Jupiter analyst Aram Sinnreich says. The federal judge's ruling may help speed up whatever negotiations Napster has going on for settlement and to gain new licenses for access to the record companies' music catalogues. Napster offered $1 billion to settle its case last February, asking for licensing agreements to the large recording companies' catalogs, but the offer was rejected.

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