RealNetworks, MTV and Verizon Go After Apple and AT&T

The digital music battle just got a lot more interesting.

Granted, the Apple and AT&T partnership isn’t particularly strong. (AT&T is basically a new company with an old name and the relationship is really with Cingular, one of the least-liked of the carriers.) But on the other hand, when it comes to power in their respective areas, Apple and AT&T are unmatched in terms of scale and market share.

Then again, RealNetworks is arguably second only to iTunes in terms of user experience, and is actually broader with a variety of partnerships with firms like Sonos and SanDisk. Verizon is believed to be the best data provider in the US in terms of consistent performance and coverage, and is one of the best-liked by customers. To top it off, if there is any brand more connected to music than MTV or with more history in the space, well… I’m not aware of it.

No Smack Down for Personal Music

If it weren’t for the fact that a partnership between three very different companies will be very difficult to do and that Apple is the entrenched vendor in personal music, this would likely be a very painful experience for Apple and AT&T.  Nonetheless, this isn’t to say they can ignore the team-up either – and it will likely change dramatically the sort of content and service iTunes customers receive as well, because Apple will have to respond to this competitive threat.

What Rhapsody America brings to the table is many more devices, more advanced technology with regard to delivering music under a subscription model, better relationships with partners and artists, and a carrier that people actually like doing business with.  Then again, Apple still has their renowned loyalty and excellent customer experience, and while they support fewer devices, those devices have been more desirable and boast a much deeper ecosystem of accessories.

In my mind, this is about as balanced a fight as we are likely to see in a market that many thought was already mature. What’s more, the big part that is creating the balance isn’t Apple weakness, but the AT&T/Cingular weakness in terms of customer experience with the iPhone. And, of course, the fact we appear to be moving away from iPod-like devices to phones that do iPod-like things.

The clear weakness on the RealNetworks side is hardware; no member of this direct partnership has any hardware at all.  This has the advantage of allowing others to fill that gap, but historically, few have been able to match Apple in terms of physical design.  That is changing, however, as we now have companies like HTC, Nokia, Motorola, LG, Samsung, and Neonode moving into the fight and ramping up their own design teams to take Apple out. In addition, in the standalone player market, SanDisk and iRiver have both been advancing nicely in the segment and arguably have better values in terms of product lineup than Apple does today.

No matter how it plays out, this fight is going to be bloody. Apple has some time to come up with a competitive response and they have the high ground (favorable position) going into the fight, so it’s their market to lose. However, to respond, they would likely need to do things they aren’t good at like partnering more broadly to even the resources they have available with the massive cumulative resources that will be focused on them through the service.

What Happens to Zune and Urge?

Boy, if you ever wanted to connect opportunity cost to a move, this partnership probably couldn’t have happened if it wasn’t for two things.: 1. A lack of success for Urge and 2. Microsoft launching their own competing service, which ultimately drove MTV to switch camps.

The Urge service was actually very good (I’m a customer myself), but it was under-marketed and it never really provided the kind of experience that RealNetworks does –  though for me, it was better than iTunes, because it handled subscription-based plans, which is my preference. (I see no point in buying music one song at a time and then not being able to play the music wherever I want.) Nonetheless, MTV undoubtedly felt – which isn’t uncommon with Microsoft partners – that Microsoft didn’t live up to their side of the bargain, and viewed Zune as a betrayal.

If there is a clear loser in this it is obviously Microsoft, who lost one of their key partners (while Urge will continue according to MTV, the subtext was they want out of the deal… and even if it does continue, it will likely receive no additional funding from MTV.) This is big enough to force Microsoft to rethink their strategy with Zune as this partnership between Verizon, MTV, and RealNetworks is probably much closer to what they should have done in the first place than what they actually did with Zune if the goal was truly to be successful in the segment.

Microsoft has several paths available including doing nothing. They could try to join this partnership as a funding partner and technology provider (they aren’t really natural competitors to any of the partners unless they choose to be. Alternately, they could also create their own partnership with the majority of folks that compete with Verizon and AT&T and aren’t in either organization.

However things play out, Zune is now clearly overmatched by these two partnerships though, and if they are to continue that effort they will need to significantly step it up as the entire market is moving to a completely different battlefield and almost abandoning the one that Zune initially targeted.  This is kind of reminiscent of the MSN/AOL battle in the ‘90s, where the market moved on and both MSN and AOL were eventually trivialized, which is a good warning sign for both Microsoft and Apple.

Wrapping Up

In the end, for both RealNetworks and Apple iTunes (and particularly iPhone) customers these new developments are actually good news, because competition like this not only forces more great choices –  it forces vendors to step up their solutions and love their customers.  This means more attention will likely be put on the painful AT&T side of the iPhone deal to ensure it doesn’t sink that partnership, and until the Rhapsody America effort gets off the ground, the iPhone still lacks a truly competitive solution.

The bottom line being that if they can pull this off (and I’ve seen more failures of partnerships like this than successes), the effort by RealNetworks, Verizon and MTV could very well do more to change the market for the better than the collective efforts of everyone else coming before them.  The potential is massive, and for those of us who want our entertainment any place we can get it, that has to be a wonderful thing.

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