LONDON, Dec 16 (Reuters) - BT Group (London:BT.L - News), Britain’s dominant fixed line telecoms firm, is aiming to cash in on the music download craze, launching on Monday a subscription-based Internet service called “dotmusic on demand.”

The venture, a partnership between BT and OD2, the British technology firm co-founded by musician Peter Gabriel, will enable BT to sell music downloads and audio streams of up to 120,000 songs on BT’s new music site www.dotmusic.com.The emergence of free file-sharing Internet services such as Kazaa, Grokster and the now-grounded Napster has triggered a massive illicit trade in copyright-protected songs, movies and video games.

Now a variety of retailers, music labels and Internet firms want a cut of the action, hoping the introduction of regulated, subscription services will sway music fans to opt for “legal” music downloads.

With subscription services, the music labels and technology firms, such as BT and OD2, each share a percentage of the revenues, introducing a new compensation scheme into this emerging platform for distributing music.

For BT, adding a music download service to its Internet operation is an important revenue booster, especially as online advertising revenues show no sign of recovery.

CHEAP ON THE NET

BT acquired dotmusic.com, one of the UK’s oldest music sites, earlier this year. Last week, as part of a larger reorganisation initiative, dotmusic.com and the Internet service provider Openworld were brought under the BT Retail division.

The venture with OD2 will greatly expand dotmusic.com’s selection of songs for downloading and listening. Dotmusic has become a popular site for music fans looking for latest album reviews and information on concerts.

Under the new deal, dotmusic.com will offer tracks from four major recording labels including Universal Music (Paris:EAUG.PA - News; NYSE:V - News), Bertelsmann’s (BERT.UL) BMG, EMI (London:EMI.L - News) and AOL Time Warner’s (NYSE:AOL - News) Warner Music, plus a host of independent labels. Artists range from Coldplay to Louis Armstrong.

Dotmusic.com will sell subscriptions for 4.99 pounds ($7.93) and 9.99 pounds, enabling consumers to listen to up to 500 songs or download 50 songs on the cheaper plan, and up to 2,500 listens or 250 downloads for the more expensive version. OD2, which provides streaming and download technologies for dotmusic.com, has separate distribution deals with Microsoft Corp’s (NasdaqNM:MSFT - News) MSN, Tiscali (Milan:TIS.MI - News) and music retailer HMV (London:HMV.L - News).

BT and the other subscription download services face a tough task in getting Internet users to migrate from free services.

Ed Averdieck, marketing director for OD2, said consumers were still largely unaware that subscription services are available throughout Europe despite a number of household names already on the market.

“We think there is a long way to go here,” he said. He added that a number of Internet service providers had begun offering free music downloads as part of a monthly Internet access subscription to reduce churn and attract new customers.

“My prediction for 2003 is that music download services will be a widely used marketing tool by ISPs,” he said.

After some serious thought, we have switched hosting services to N6 Networks (http://www.n6networks.com). The transition is almost complete, so stay tuned. The forum will be up shortly. Woo-Hoo!

MILPITAS, Calif.–(BUSINESS WIRE)–Dec. 2, 2002–Sigma Designs (Nasdaq:SIGM - News), a leader in IP video streaming solutions, today announced that NEC Corporation (Nasdaq:NIPNY - News; FTSE:6701q.1) has selected Sigma’s EM8470 MPEG decoder for incorporation into its new AX10 Home Audio/Video Server. The AX10 was introduced by NEC last month as part of its new fall line-up of consumer multimedia products for the Japan market.

NEC’s AX10 is designed to function as an entertainment server in the home, accepting terrestrial broadcast signals that can be recorded, stored on a local hard drive and played back on either televisions or PC monitors. By using a large internal hard drive, the AX10 can support lengthy time recordings without the use of videotape, as well as allowing recorded information to be checked without actually viewing the program. In addition to user initiated recording, the unit can access the electronic program guide information for designating future programs to be recorded. The AX10 currently supports recording and playback of MPEG-2 video and MPEG-1 layer 2 audio.The AX10 also contains a multitude of convenience features, which enable greater utility when connected as an A/V server to a PC:

- Playback of recorded files or setting recording parameters can be done from a remote PC
- Recorded programs can be viewed on a TV or a PC monitor
- Recorded programs can be copied to a PC for editing and VCD/DVD authoring
- Supports wireless LAN connectivity

Sigma’s EM8470, a featured hardware component in NEC’s new product-line, supports video playback on the television and is envisioned for use with a broad range of video applications. The new EM8470 series, based on the company’s award-winning REALmagic® Video Streaming Technology, is the industry’s first decoder chip to support MPEG-4 with full DVD resolution (720x576) as well as hardware DVD playback and streaming video based on ISMA or custom RTSP clients. The EM8470 provides a highly integrated solution for decoding of MPEG-1, MPEG-2, and MPEG-4 video content, Dolby® Digital, MPEG-1 Layers 1 and 2, AAC and CELP audio content, as well as complete output formatting for TV display.

“NEC is helping create a trend toward innovative consumer products that cut the line between consumer appliances and personal computers,” said Ken Lowe, vice president of business development at Sigma Designs. “Sigma is enthusiastic about working with NEC and providing our third generation MPEG decoder chips to support top quality video features for TV viewing.”

About NEC

NEC Corporation (Nasdaq:NIPNY - News; FTSE:6701q.1) is one of the world’s leading providers of Internet, broadband network and enterprise business solutions dedicated to meeting the specialized needs of its diverse and global base of customers. Ranked as one of the world’s top patent-producing companies, NEC delivers tailored solutions in the key fields of computer, networking and electron devices, through its three market-focused, in-house companies: NEC Solutions, NEC Networks and NEC Electron Devices. NEC Corporation employs more than 140,000 people worldwide and had net sales of approximately $39 billion in the fiscal year ended March 2002. For additional information, please visit the NEC home page at: http://www.nec.com/.

About Sigma Designs, Inc.

Sigma Designs specializes in silicon-based MPEG decoding for streaming video, progressive DVD playback and advanced digital set-top boxes. The company’s award-winning REALmagic® Video Streaming Technology is used in both commercial and consumer applications providing highly integrated solutions for high-quality decoding of MPEG-1, MPEG-2 and MPEG-4. Headquartered in Milpitas, Calif., the company also has sales offices in China, Europe, Hong Kong, Japan, Korea and Taiwan. For more information, please visit the company’s web site at www.sigmadesigns.com/.

Note to Editors: REALmagic® is a registered trademark of Sigma Designs, Inc. Other product and service names mentioned herein are the trademarks of their respective owners.

UNAUTHORIZED COPYING OF SONGS FLOURISHING

On his way to MusicNet headquarters in New York, Alan McGlade, chief executive of one of the record labels’ newest online ventures, passes a humbling sight: the largest McDonald’s restaurant in the world.

This single restaurant served more paying customers during the past year than all the online subscription music services combined. “I’ll run downstairs to Times Square and ask people if they’ve ever heard of these companies,'’ McGlade said from his desk. “It’ll be a waste of time because, of course, none of them have.'’

In the 12 months since MusicNet and the other subscription music services were launched to counter the file-swapping frenzy that Napster ignited, none has managed to attract more than 100,000 paying subscribers, label sources and analysts say.Meanwhile, unauthorized music and movie swapping continues to flourish. Despite the recording industry’s best legal and technological efforts, the free file-swapping service Kazaa remains the most popular music destination on the Internet in the wake of Napster’s collapse, attracting nearly 13.7 million visitors a month from the United States alone.

And as testament to the allure of getting something for nothing, Kazaa’s audience is growing 324 percent annually, according to Nielsen/NetRatings, an audience measurement firm in Milpitas.

The fundamental problem for the paid subscription services: a lack of music selection, caused by big-name artists and niche labels refusing to license their songs and actions by some big labels to reserve popular content for their own online ventures.

Executives for the label-backed music services say they are finally ready to prove that the “Evian theory'’ can work for music just as it did for the bottled water industry: Consumers can be coaxed to buy something they can readily get for free if the marketing is right, it’s convenient and portable.

“We’re entering a new era,'’ said Matt Kleinschmit, senior research manager for Ipsos-Reid, a research firm in Minneapolis. “The first eight months of these services were kind of preseason. Now, they’re giving consumers more of what they want.'’

To be sure, the pay services have evolved since they began. Listen.com’s streaming music service Rhapsody allows subscribers to burn favorite tracks to CD. And Pressplay ditched its earlier count-the-downloads turnstile mentality this summer, allowing its subscribers to freely stream and download as many songs as they want, buy individual tracks and burn their music to a CD or download to a portable player.

Services bedeviled by gaps

“Since we launched version 2 in August, we have more than doubled our user base,'’ said Michael Bebel, Pressplay’s president and chief executive officer. “At the same time, we’ve grown in usage. These two factors combined signal to us that we have a real product that people are interested in.'’

MusicNet, the other label-backed venture, said its distribution partners, America Online and RealNetworks’ RealOne Music, will offer something similar early next year.

But the subscription services remain bedeviled by gaps in the one thing that matters most – the music. A recent check of Rhapsody and MusicNet’s service through RealNetworks RealOne Music revealed that neither service offers all top 10 of the most popular songs in the country, as tracked by Billboard Magazine. The best of the lot, Pressplay, offered only four of the biggest hits. The worst, MusicNet, offered only two.

Sometimes it’s an artist issue. Some artists, such as No Doubt, Avril Lavigne, the Rolling Stones and the Beatles, refuse to have their work online.

In other cases, deals have yet to be struck with certain independent labels, such as Clive Davis’ J Records or Madonna’s Maverick, which deprive the services of sought-after acts like Alicia Keys or Michelle Branch.

Sometimes it’s a publishing issue, where singer-songwriters like Billy Joel own the rights to their own compositions but just haven’t sold the rights to online services.

Will they ever catch on?

And sometimes labels favor their own affiliated services. Sony Music Entertainment, for example, offers Jennifer Lopez’s Top 10 single “Jenny from the Block,'’ only on its Pressplay service.

“With services like ours, we’re working so hard to get basic content,'’ said Listen.com’s chief executive, Sean Ryan. “And with the fringe cases – it just takes more time and effort for the industry to evolve to get this to happen.'’

The more daunting question is whether paid services will ever catch on with consumers. The most successful industry-supported sites, America Online’s AOL Music and Yahoo’s Launch, are free. Launch, which attracts 7.9 million people a month, uses advertising to subsidize its free radio, music videos and artist spotlights.

AOL Music – which garners the largest audience of the legitimate online offerings, with 10.8 million listeners a month – embraces the cable model, bundling the cost of its programming into the customer’s monthly bill.

Indeed, the subscription services may never amount to anything but a niche business.

What could save the nascent industry – at least in the estimation of researchers such as Forrester and Ipsos-Reid – will be individual music downloads.

The ability to buy tracks or entire albums on impulse online – through Amazon.com, Borders or Virgin – will both revitalize the moribund (and traditionally money-losing) singles business, and generate an estimated $2.1 billion by 2007, researchers estimate.

For now, all-inclusive subscription services have an uphill fight.