AOL Jumps into Net Music with $400 Million Acquisition

Better late than never. America Online has finally leaped into the Internet music business with its recent purchase of San Francisco-based Spinner Networks, and Nullsoft of Sedona, Arizona. The combined deals, which were announced on June 1, cost AOL $400 million in company stock.

Spinner is an Internet "radio station" that claims to transmit more than 2 million songs per day in more than 100 categories---everything from baroque pieces to alternative rock---to millions of users worldwide. Nullsoft is the developer of the popular WinAmp software, used by music fans to play downloaded MP3 audio files. Justin Frankel, Nullsoft's 20-year-old president, is the latest digital Wunderkind made rich by hysteria for all things Internet.

AOL's new music division will be consolidated in Spinner Networks' headquarters on Alabama Street in San Francisco, in a part of town becoming known as "audio alley," according to San Francisco Chronicle staff writer Benny Evangelista. "We are excited about the Nullsoft guys joining forces with us," Spinner CEO Dave Samuel told the Chronicle.

In its report on the deal, the Wall Street Journal noted that AOL's involvement in Internet audio was welcomed by music-industry executives, who have been reeling from the rapid growth of the MP3 format. MP3 files are widely shared over the Net by music fans without regard for copyright restrictions or royalty requirements. The music industry hopes that a well-established corporation like AOL will be easier to work with on copyright issues than some of the more rebellious upstarts have proven to be.

The Journal's report was flawed by its characterization of MP3 as offering "high-fidelity" playback. Even the most adamant promoters of Internet audio---such as members of the industry who spoke about downloading music at last month's HI-FI '99 in Chicago---admit that, as it is presently configured, MP3 is at best a low-resolution format.

The quality of Internet audio will improve as wider bandwidth becomes available for transmitting higher data rates. No one doubts that will happen---the only disagreement seems to be about the timetable. With a dreadnought like America Online weighing in for musical downloads, it's obvious that Internet audio is here to stay. Of the Nullsoft and Spinner acquisitions, AOL president Bob Pittman said: "Combining these leading Internet music brands with the audience reach of our brands will lift music online to the next level of popularity. We plan to build downloadable music, Internet radio, and overall music features into each of our brands."