Timing Of Music Service Announcement Questioned

Vivendi Universal chairman Jean-Marie Messier's confirmation Thursday that a music subscription service is being created jointly by Universal Music Group and Sony Music Entertainment provides the latest indication that the music industry is growing increasingly fractured over the future of online distribution. While a Sony spokeswoman stressed that Messier's comments during an interview with Reuters represent no new developments since the announcement of the joint venture in May, analysts questioned the timing.

Messier's comments come 10 days after the 9th Circuit Court of Appeals ruled that file-sharing service Napster Inc. enables copyright infringement and two days after Napster divulged its plan to pay labels $1 billion during the next five years. Napster's plan was greeted with skepticism from a number of music industry execs, including Vivendi vice chairman Edgar Bronfman.

Jupiter Research analyst Aram Sinnreich says none of the labels will make money online until they're all on the same page, and that the actions of Universal and Sony cement his sense that the labels don't really view the Internet as a threat but instead want to own the distribution channel outright. "Announcing their service a day after they vociferously expressed their doubts about the Napster business model strikes me as disingenuous and smacks of chutzpah," says Sinnreich, referring to Universal and Sony. He says three camps have emerged: the new America Online/Time Warner combination, the Universal/Sony joint venture, and the BMG Entertainment/Napster alliance that could soon include EMI Recorded Music if BMG and EMI make progress in their merger talks.

Sinnreich and Gartner analyst P.J. McNealy admit that even a unified online front among the labels would have challenges. Both say that if all the labels joined forces as one digital distribution front, they'd expect federal regulators to look into possible price fixing. Even so, McNealy expects some kind of distribution consolidation to occur. "I think there's going to be a third-party aggregator who'll step up and become a super distributor." Among those that McNealy says could become such an aggregator are AOL Time Warner or Yahoo.