NEW YORK (CNN/Money) – Music on the Internet for free or a fee? For investors, it doesn't really matter. They should probably just steer clear of most companies that aim to capitalize on the online music trend.

AOL Time Warner launched a new online music initiative with much fanfare Wednesday. As a result of that announcement, shares of Sonic Solutions, a tiny company that makes CD and DVD burning software, surged 13 percent in heavy trading, nearly five times normal volume. That's because AOL Time Warner announced it was licensing Sonic Solutions technology as part of the new service, called MusicNet on AOL.

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But the big spike in Sonic Solutions (SNIC: up $0.53 to $4.63, Research, Estimates) might have been a little overdone, said Justin Cable, an analyst with B. Riley & Co., a boutique research firm focusing on small-caps, noting there was no disclosure about the financial terms of the deal.

Cable said it was unlikely that the company will be receiving any royalties from AOL, so it's unclear just how much the AOL deal will mean for Sonic Solutions' bottom line. Cable does not own Sonic Solutions and his firm does not do investment banking.

MusicNet is a joint venture owned by three of the world's five biggest music companies – Bertelsmann, EMI Group and Warner Music, which like CNN/Money, is a subsidiary of AOL Time Warner (AOL: down $0.16 to $10.27, Research, Estimates). The other two major record companies, Sony and Vivendi Universal, co-own another online music venture called Pressplay.

The major music companies have been struggling to combat declining record sales for the past two years. According to Nielsen SoundScan, album sales fell 11 percent in 2002, more than double the 5 percent drop in 2001. And one reason commonly cited for the music industry's woes is the availability of music on the Internet.

But so far many music listeners have shown little willingness to pay for music when they can download it for free from so-called peer-to-peer sites such as Kazaa or Morpheus that allow users to share music files. And because of the somewhat onerous subscription prices, that might not change in the near future.

For example, AOL subscribers, who are already paying a monthly fee for AOL, would have to pony up another $17.95 a month for the most premium service: which includes unlimited streaming and downloading but the ability to only burn 10 songs a month to a CD.

"I'm not sure that the music companies' online offerings are compelling enough for the consumer. Any subscription price is more expensive than file-swapping," said Steven Frankel, who follows Sonic Solutions and its competitor Roxio for Adams Harkness Hill. Frankel owns neither stock and his firm has no investment banking relationship with those companies.

Few technology companies, let alone the major music labels, have been able to consistently make money from online music yet. Downloading songs and burning them to CDs may seem cool since so many people are doing it, but that doesn't make the companies involved good investments.

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To wit, RealNetworks (RNWK: down $0.17 to $4.18, Research, Estimates), which was a Wall Street darling in the late 1990s, lost money in 2002 after making a profit in 2001. The company, which makes the popular RealPlayer, is also expected to lose money this year. The stock now trades for about $4, more than 95 percent below the all-time high reached in early 2000.

LiquidAudio (LQID: up $0.02 to $0.34, Research, Estimates), which makes software that helps to digitally encode online music files, is in the process of selling off its assets. Its stock now trades for 33 cents, more than 90 percent off its peak price in late 1999.

And Roxio (ROXI: down $0.28 to $4.50, Research, Estimates), which competes with Sonic Solutions in the CD burning market, has also been a poor performer as of late. The stock is more than 80 percent below its 52-week high.

Although Roxio is expected to be profitable in this fiscal year, there are concerns about how the company will fare once it relaunches a subscription service of Napster later this year.

Roxio acquired the technological assets of Napster last year after the popular free file-swapping service entered bankruptcy. Napster was forced to shut down in 2001 after being sued by the Recording Industry Association of America for copyright infringement.

Cable is not recommending the stocks of Roxio or Sonic Solutions because of concerns about earnings visibility for the next few quarters and pricing pressures. In other words, he said, don't get caught up in the online music hype.