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AOL strikes digital-download deal

Industry Standard

June 30, 2000
Web posted at: 10:19 a.m. EDT (1419 GMT)

(IDG) -- In a deal that might push paid digital-music downloads into the mainstream, AOL announced Tuesday that it has adopted a standard to sell music, videos and other content to its 23 million subscribers.

The deal makes Sunnyvale, Calif.-based InterTrust the "preferred provider" of digital-rights-management technology across all of AOL's brands and will cover all content offered through the AOL system. Ultimately, this could include music owned by major record labels Warner Music Group and EMI, as well as films owned by Warner Bros. Studios, thanks to two proposed mergers that would bring AOL, Time Warner (TWX) and EMI content under one roof. EMI is merging with Time Warner, which, in turn, is merging with AOL; both mergers await regulatory approval.

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AOL will first implement the technology by releasing an InterTrust plug-in for its Winamp digital-music player, which has 25 million registered users and 100,000 downloads a day. Later this year, AOL will distribute InterTrust's client software on promotional CDs containing AOL version 6.0.

"We look at it this as the beginning of learning how to commercialize digital downloading to make it viable for consumers," says Wendy Goldberg, an AOL spokeswoman.

The deal, the exact terms of which were not disclosed, marks the first time that AOL has adopted a digital-rights-management technology and opens myriad business models for AOL to sell music or video to consumers. Using InterTrust, the online giant can sell downloads, rent them or charge a monthly subscription that could be added to a consumer's AOL bill. Like a credit card, InterTrust would collect a fraction of 1 percent of each sale.

"AOL is a sea of users," explains InterTrust VP Talal Shamoon. "All of a sudden, we can launch content into that sea. AOL consumers could be billed by the month for what they consume."

Or they could not be billed at all. Instead, Warner, EMI or any other owner of music, video or other content could release it for free, wrapped in protective code, which could report back who downloads the music or video and provide rights-holders with valuable information about consumers.

The system also could be set up to make the consumers themselves distributors of content, by offering incentives. A fan of Brittany Spears, for example, could download a song, pay for it and pass it on to 50 friends. If those 50 also pay for the song, the fan could get free passes to the next Brittany Spears concert. The same deal could be extended to the 50 friends and beyond.

AOL also could set up a music-sampling service that could rival Napster and other popular file-swapping programs. But instead of trading MP3s with others, users would download music that they could listen to once for free. They would then have the option to buy the track.

"You can build any business model you want on the platform, even turn the consumer into the distributor," Shamoon says.

Of course, there are many sites that allow music consumers to sample before they buy, but the InterTrust protective code, called a "digibox," stays with the content wherever it goes. If a music fan passes along a song protected by InterTrust to a friend, that friend will be subject to the same rules as the first user to download the song.

InterTrust has deals with two of the five major record labels, Universal Music Group and BMG.

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