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Internet Music Business Likely to Flourish With America Online and Time Warner's Merger
By David E. Kalish   Associated Press
NEW YORK — The merger of America Online Inc. and Time Warner Inc. could turn out to be a hit with those who want their music served hot off the Internet.

Most music now available for downloading is either by relatively unknown artists or is bootlegged in violation of copyrights, but the merger could help change all that — hastening the day when customers of the company can snatch popular albums directly off the Web instead of buying $16 CDs.

"One of the main barriers to consumers adopting online music has been the low volume of major label music that's available on a legitimate basis," said Aram Sinnreich, an analyst with the Internet research firm Jupiter Communications Inc. said Wednesday.

"AOL Time Warner has the power to change that."

How? Time Warner owns one of the largest music businesses, with rights to top artists like Alanis Morissette, Madonna, Phil Collins and R.E.M. as well as a cable-TV network ideal for high-speed transmission of music. AOL, for its part, has a ready online audience of 22 million users and a coveted team of software developers.

By owning all the pieces to supplying online music on a broad scale, AOL Time Warner gains a ready edge over other companies that need to forge partnerships.

The promise of online music is compelling: Sales of downloaded online music are expected to grow from a minuscule $1 million last year to $1.1 billion by 2004, according to Forrester Research, making up about 6 percent of all music sales. That means fewer CDs sold at stores, as everyday Americans download songs to portable digital players they can take jogging or on the train to work.

Despite the online potential, the recording industry thus far has refused to release its songs over the Internet until a secure method is widely adopted for making sure they get paid royalties for songs.

Time Warner chief executive Gerald Levin, at a news conference Monday, named online music as a top priority. While Time Warner also is a big film producer, movies are more difficult to distribute online, because — even with high-speed Internet hookups — they can take hours to download and video can appear jerky and inconsistent. As a result widespread downloading of films is probably years away.

While executives at America Online and Time Warner were vague about plans, speculation is rife.

The combined company, analysts say, may initially step up promotion of Time Warner's music to AOL's online users through ads as well as through links to Web sites where people can buy CDs through the mail.

In a second stage, Time Warner could transmit its music across existing slow-speed Internet connections to AOL users who pay an extra fee above its $21.95 monthly subscription fee.

As Time Warner's cable-TV lines are upgraded for Internet usage, the merged company could zap songs across these high-speed lines, resulting in better song quality and faster download times than across slow telephone lines.

America Online also plans to boost its existing online music efforts.

For instance, it already owns Spinner.com, one of the biggest sites for letting users listen to songs on their computer. This site uses "streaming" technology that allows people pay just pennies for each song they hear. While major artists are available, streaming doesn't let users record and keep the music on portable digital players.

AOL's site would be an ideal place for Time Warner to promote its trove of music, analysts said.

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