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June 29, 2008 at 9:01 PM

RealNetworks opens DRM-free store, hooks up with iLike, MTV and Yahoo

After years of encouraging people to rent rather than buy music, RealNetworks today is changing its strategy and opening an online music store featuring songs unprotected by digital rights management software.

The store, plus new partnerships it’s announcing with Seattle’s iLike, MTV and Yahoo, puts Real in direct competition with Apple and, the leaders in offering online sales of DRM-free music.

An earlier deal with Verizon also takes effect today, putting Real’s music services on phones, giving the company a trifecta that it hopes will renew interest in its music services.

By partnering with iLike, a Seattle-based music discovery service with 28 million users, Real is making its move on social networking sites where iLike’s service has proliferated. The deal will allow users of iLike’s music software to try and play up to 25 free, full-length songs a month, instead of just playing 30-second samples of songs.

“We really think this is the first widespread implementation of a scalable model to monetize consumption of music across not just iLike but other networks where we’re syndicated,” said Ali Partovi, iLike’s chief executive.

To make that acceptable to record labels and artists, Real will pay royalties every time one of the full-length tracks is played. In return for that expense, it’s Rhapsody music subscription service will get more exposure.

“Real gets the benefit of massive marketing coverage through iLike,” Partovi said. “Essentially with this deal, all of iLike’s consumers are going to be exposed to try out a free version of Rhapsody’s service.”

Neil Smith, vice president of Rhapsody, said the costs of royalties for songs played in iLike and elsewhere on the Web are worthwhile.

“Extending into that space through them is a big win for us,” he said.

Why didn’t Real just buy iLike outright?

“I don’t think we can comment on that,”’ Partovi said. “We’re a close partner with a number of companies.”

Smith said he wasn’t involved in that sort of discussion, but the companies are likely to expand their relationship in the future.

“There’s lots of opportunity for us to do great things going forward,” he said.

The DRM-free approach applies only to songs sold on Real’s new MP3 store, where the tracks will be available initially at 256 kilobits per second rate. Smith said higher bitrate versions are likely in the future.

On Rhapsody, a subscription service where about 3 million customers now pay a monthly fee for unlimited access to Real’s catalog, songs will continue to carry DRM protection.

Full-length songs played through iLike, MTV and Yahoo are also protected. The service will debut on iLike in stages next month. On Yahoo and MTV, it will start to appear in July and then reach full scale later in the third quarter.

Real’s deal with Verizon lets customers buy songs on their phone and have them available on the Rhapsody console on their computers in MP3 format so it can be saved there or transferred to other devices. Smith said Verizon will handle billing for song purchases and its customers’ Rhapsody subscriptions.



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