Musical Chairs From AOL, Vivendi

Now that Time Warner's (NYSE: TWX) AOL unit has opened the gates to its formerly subscription-based community, it's revamping one of the most promising products there: its musical offering. Still, even though music represents one of the Internet's most popular content offerings, AOL's up against some stiff competition.

AOL said that its Web-based musical jukebox, AOL Music Now, will include many hot features users currently demand, including downloads, programmed radio, and streaming audio and video. Users can pay $10 to $15 for full access; the higher fee allows users to download their music to compatible music players. They can also pay $4.95 per month for AOL with XM Satellite Radio (Nasdaq: XMSR) service. Interestingly, AOL bought Music Now from Circuit City (NYSE: CC) last year.

Intriguingly, AOL will allow paying Music Now members to download unlimited music videos. Until now, it's been common that users could view but not download videos, or they'd have to pay for video downloads.

Although this is yet another bid to tap into the Internet advertising market, AOL has plenty of competition. Apple's (Nasdaq: AAPL) iPod is still fairly ubiquitous among MP3 players, bolstering iTunes' dominance of the space. And there are plenty of other contenders, like Napster and RealNetworks (Nasdaq: RNWK), as well as Internet content giants like Yahoo! (Nasdaq: YHOO) and, of course, AOL.

Coiniciding with AOL's announcement, Vivendi's (NYSE: V) Universal Music Group said that it will support a free music offering through a service called SpiralFrog. It's fascinating that Universal Music is allowing users access to its songs for free through SpiralFrog as an alternative to piracy. Although the experience of "free" will feel the same for consumers, Universal and SpiralFrog will share revenues from advertising.

Digital music has been rapidly evolving, as many different players attempt to get in on the action. For the time being, though, as long as Apple retains its dominance in the field, it's an uphill battle for rivals to make it too terribly far. However, if or when interest in the iPod begins to erode -- and obviously, these companies are banking on that inevitably coming to pass -- it should be very interesting to see which ones will be the winners with the musical services they've been working hard to build up.

Read up on some of AOL's most recent developments:

• Time Warner's playing games.
• Time Warner thinks small.
• AOL just wanted to be free.

Time Warner is a Motley Fool Stock Advisor recommendation. XM Satellite Radio is a Motley Fool Rule Breakers pick. You can try out these or any of our other investing newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned.