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MTVN to Fold Urge Music Site; Teams Up with Rhapsody

MTV Networks will discontinue its URGE online-music subscription site, merging it with RealNetworks’ Rhapsody service to be managed by a new company, called Rhapsody America.

The joint venture will sell song downloads to PCs and portable music devices, as well as to mobile phones through an exclusive deal with Verizon Wireless.

Under the terms of the deal, MTVN will contribute an unspecified amount of cash, a five-year note for $230 million and other assets, including its existing URGE subscribers and marketing materials, according to a RealNetworks filing Tuesday with the Securities and Exchange Commission.

RealNetworks will hold a 51% interest and MTVN will hold a 49% interest in the joint venture, whose term is set at 99 years, according to Real’s SEC filing. In addition, Rhapsody America is obligated to purchase $230 million in advertising on MTVN cable channels and will receive additional integrated marketing over the term of the agreement.

RealNetworks said it expects the formation of Rhapsody America with MTVN to generate incremental revenue of about $0.5 million for the third quarter of 2007 and $2 million to $3 million for the remainder of 2007.

In teaming up, MTVN and RealNetworks clearly hope to deliver a product that’s more competitive with Apple’s iTunes, the 800-pound gorilla in online music retailing that has sold more than 3 billion songs to date. RealNetworks currently has about 2.7 million subscribers for Rhapsody and its other premium music services.

Rhapsody America will become the default music service across all of MTVN’s brands, said Van Toffler, president of MTVN Music, Logo and Films, on a conference call with reporters. The Rhapsody service will be redesigned from its current incarnation, he added.

RealNetworks CEO Rob Glaser said the companies had been in discussions to create the partnership for almost a year.

Toffler said the joint venture “will be supported by our formidable marketing power.” MTV will kick off its promotion of Rhapsody America during the 24th annual MTV Music Awards, to be broadcast live Sept. 9 at 9 p.m. Eastern.

MTVN created URGE in a partnership with Microsoft in late 2005; Toffler said the URGE service will be available on Microsoft’s Windows Media Player 11 “until further notice.”

Toffler said Michael Bloom, who is currently in charge of Urge, will run Rhapsody America.

Meanwhile, the URGE Radio music channels MTVN offers through cable operators are not part of the deal with Rhapsody America, according to spokeswoman Mariana Agathoklis. Those channels will remain, although the URGE branding most likely will change: "That will be worked out in the coming weeks," she said.