AOL Launches Music Subscription Service

America Online Inc. on Thursday said it has acquired online music subscription company MusicNow LLC, and has launched a preview of the new AOL-branded service.

AOL, a Dulles, Va.-based, subsidiary of Time Warner Inc., agreed to buy the service Sept. 27 and closed the deal early this week. Financial terms were not disclosed. Circuit City Stores Inc., Richmond, Va., owned MusicNow.

The new service is called AOL Music Now. Subscribers to AOL's old service, MusicNet@AOL, will be gradually be moved to the new service. The older service let subscribers browse, share and buy music.

MusicNow, founded in 1999 as FullAudio and purchased by Circuit City in 2004, will continue to be based in Chicago, AOL said. The company will operate as a wholly owned subsidiary of AOL Premium Services LLC, a subsidiary of AOL in the digital services business unit.

MusicNow's 40 employees, including President Gary Cohen, will report to Amit Shafrir, president of AOL Premium Services; and Ed Fish, senior vice president and general manager of AOL Premium and Subscription Services.

"AOL's users have been asking for these next-generation features to be a part of their music experience -- and AOL Music Now will deliver them," Fish said.

Subscription services are growing in popularity with consumers. JupiterResearch predicts that revenues from the services will surpass that from buy-to-own music by 2009, when revenues are expected to be $900 million and $800 million, respectively.

In four years, music downloaded from the Internet, either through individual purchases or subscription, are expected to account for 12 percent of the $13.5 billion consumers are projected to spend on music, according to JupiterResearch. In 2003, music downloads accounted for 1 percent of the $12 billion spent on music.

In launching its service, AOL's will be competing with Yahoo Inc., RealNetworks Inc. and Napster LLC. Microsoft Corp.'s MSN and Apple Computer Inc., which owns the popular iTunes music store, have yet to launch subscription services.

AOL Music Now subscribers will be able to buy tracks for 99 cents apiece, the average price in the industry, or buy a $9.95 monthly subscription for unlimited streaming and downloading to a PC, or $14.95 to also be able to download the music to a portable player. The AOL catalog has more than a million songs, which can be managed with Microsoft's Windows Media Player or other compatible software.

MusicNow is AOL's fourth corporate acquisition this year. The others include Weblogs, Inc. in September, and Xdrive Inc. and Wildseed Ltd. in August.