At a macro level, RealNetworks has essentially bundled RealPlayer Music Store, its paid-download service, and parts of RealJukebox, its personal music organization application, in with Rhapsody.  Whereas Rhapsody has been an on-demand streaming service that allows CD burns for some music tracks, it's now a download service as well.  Downloads expire when a user's subscription lapses, but they are accessible when the user is offline.  The service also offers permanent downloads for sale, with paid subscribers getting a discount.  As with the standalone version of RealPlayer Music Store that launched last summer, users can download files in their choice of RealAudio, Windows Media Audio, and Apple iTunes formats (and RealNetworks claims that it has fixed compatibility problems with some recent iPods). 

RealNetworks had little choice in its move to embrace Windows Media DRM for its Rhapsody To Go service.  It has to compete with Napster on portable device support, and HelixDRM does not support anywhere near the number of different portable music players that Microsoft's DRM does.  There is also evidence to suggest -- though RealNetworks has been quiet about it -- that Rhapsody was originally based on Microsoft Windows Media technology and was never changed after RealNetworks acquired the service from Listen.com in 2003. 

Yet all this is part of RealNetworks's strategy to recast itself as a content service provider rather than as a platform company.  Just as its longtime ally Sun Microsystems eventually capitulated and started offering computers that can run Windows in addition to its own Solaris operating system, RealNetworks is now sleeping with the enemy even as it carves out a differentiating strategy.  

And in terms of the company's success as a music service provider, the strategy is working.  The new Rhapsody is loaded with attractive new features for users.  The upgrade leapfrogs both Napster and MusicMatch in overall functionality and design, and cements our view of it as the best online music service, particularly for adventurous music fans.  Besides the "To Go" moniker for its portable-device transfer feature, playlist sharing is another feature that Rhapsody appropriates from Napster.  RealNetworks has upped the music sampling rate to a maximum of 192kbps, which approaches true CD quality, for broadband subscribers.  Graphics and user interface are also improved. 

And best of all, RealNetworks is offering streams of up to 25 songs per month for free, just for registering.  This aggressive attempt to capture market share is similar to the one that RealNetworks offered when it launched RealPlayer Music Store late last year: 49-cent downloads. RealNetworks is paying royalties on those "free" tracks and making it up through various promotional deals (including, we imagine, sharing registrants' email addresses with marketing partners). 

The battle over online music services is becoming fiercer and fiercer, as DRM for online music effectively becomes a three-way market (Apple, Microsoft, and the rising OMA DRM standard in Europe).  Service providers are battling it out over features and price, and the music industry is cooperating with appropriate licensing deals in its attempt to launch viable paid alternatives to file-sharing services.  Our view has been that market forces will trump all -- even whatever decision comes out of the Grokster case before the Supreme Court -- in determining the eventual winners.

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