Rhapsody, MTV Urge services merging

At the MTV Video Music Awards next month, there may be a rising star in attendance — RealNetworks' Rhapsody digital-music service.

On Tuesday, Seattle-based RealNetworks and MTV Networks, a division of Viacom, announced a wide-ranging partnership in which the two companies will market and operate the Rhapsody service together. They also partnered with Verizon Wireless to extend the service to cellphones.

The joint venture merges Real's Rhapsody music service and MTV's online Urge music service into one company, called Rhapsody America. The company will require financial and other commitments by both MTV and RealNetworks.

Integration of the two services has already begun. Starting Tuesday, Urge subscribers were allowed to log in to both Urge and Real's Rhapsody service.

MTV also committed to prominently displaying the Rhapsody brand at its marquee event — the Video Music Awards in Las Vegas on Sept. 9.

The deal also signals a change in a high-profile partnership between MTV and RealNetwork's cross-town rival Microsoft.

About a year ago, MTV and Microsoft jointly launched the Urge music service integrated into the newest version of Microsoft's Windows Media Player.

David Card, a senior analyst at Jupiter Research, said the partnership between MTV and Microsoft likely started to fall apart when Microsoft launched the Zune music player and integrated music service later in the year.

"MTV was jilted by Microsoft," he said. "They were partners on Urge, and then they changed its music strategy."

RealNetwork's Chairman and Chief Executive Rob Glaser declined to say too much about the switchover, other than to say: "I hope that we are a great partner to MTV and Viacom, and if we do a great job with them, they will do a great job with us. Sometimes you don't marry your first girlfriend."

A Microsoft spokeswoman declined to talk about specifics but said: "We can't speak for MTV's intentions about their future collaboration plans with Microsoft around Urge."

For RealNetworks, the partnership and MTV's backing could raise awareness of Rhapsody's music offerings, especially as it competes with Apple's market-leading iTunes.

Rhapsody is known for its subscription service in which customers pay a monthly fee to download as many songs as they want. When they stop paying the fee, they lose the right to listen to that music.

Many music customers have not adopted the subscription approach and prefer instead to buy individual song or album downloads.

"Effectively we had this product that everyone loves who uses it, but not a lot of people know about it," Glaser said.

"So what do you do? You put a lot of marketing behind it. And where do you do? it? On music stations."

As part of the deal, MTV will invest $230 million in the joint venture, enabling Rhapsody America to purchase that much in advertising from MTV cable channels, including MTV, VH1 and CMT.

RealNetworks will contribute a number of things to the joint venture, including its subscribers, some cash and certain employees, according to a document filed with the Securities and Exchange Commission.

Real will own 51 percent of the Rhapsody America; MTV will own 49 percent.

Real said that it expects Rhapsody America to contribute about $500,000 in revenue during the current quarter and about $2 million to $3 million for the rest of the year.

Card, the Jupiter analyst, said this partnership could really change things for both companies, which have failed to make a big dent in the digital-music business.

"For this partnership to work, MTV Networks and Verizon need to bring marketing muscle to the table," he said.

"If they do, that could mean something, but it kind of remains to be seen."

Verizon Wireless, the second-largest U.S. wireless carrier, has a multiyear exclusive with Rhapsody America that will allow its customers to download music on their phones but manage it online without having to be a subscriber, said John Harrobin, senior vice president of marketing and digital media at Verizon Communications.

RealNetworks also manages the sale of ringtones, full-track songs and ringback tones, for Verizon Wireless. Verizon will also continue to use Microsoft's digital rights management software, or DRM, to protect its digital content.

On Thursday, RealNetworks stock rose 45 cents, or almost 8 percent, to close at $6.30 a share.

Tricia Duryee: 206-464-3283 or tduryee@seattletimes.com