New Challenge for iTunes music store

http://www.mercurynews.com/breakingnews/ci_6679649

New Challenge for iTunes music store
Wal-Mart, Viacom and RealNetworks make move
By Scott Duke Harris
San Jose Mercury News
08/21/2007

Apple's online music empire is under siege. In separate announcements, Wal-Mart and an alliance of Viacom and RealNetworks announced business initiatives that put Apple in their cross-hairs.

Stepping up its competition with Apple's iTunes music store, Wal-Mart Stores has started selling some of its online music catalog without anticopying software known as DRM. The move complements Wal-Mart's sales of MP3 players that rival Apple's iPod.

Meanwhile, Viacom's MTV Networks and RealNetworks announced a merger of their digital-music services, hoping for a bigger share of the growing market for downloads. The combined service will be called Rhapsody America, Van Toffler, president of MTV Networks, said today on a conference call. RealNetworks, based in Seattle, is the owner of the Rhapsody music service.

The competitors are battling Apple's dominance, with its iPod and iTunes music store, which has more than a 70 percent share of online music sales. Digital track sales have risen 48 percent this year, according to Nielsen SoundScan.

"We're going to do a lot more than we've ever done," Rob Glaser, RealNetworks' chief executive officer, said on the call.

Meanwhile, Wal-Mart reached an agreement with two major labels, Vivendi SA's Universal Music Group and EMI Group to sell "DRM-free" single tracks for 94 cents a track and albums for $9.22.

The move shows that music industry has begun to bend to the wishes of retailers and Apple CEO Steve Jobs, who has called upon record companies to drop "digital rights management" software, or DRM. Most record companies demand that DRM software be used to prevent rampant copying. But Jobs argues that DRM has been ineffective in limiting piracy, but has limited sales and degraded sound quality.

Apple has its own DRM, which requires iPod users to buy from iTunes and limits iTunes tracks from playing on other devices. In late May, iTunes started selling thousands of tracks without DRM under an agreement with EMI Group.
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Bloomberg News contributed to this story. Contact Scott Duke Harris at sdharris@mercurynews.com or (408) 920-2704.