FOR IMMEDIATE RELEASE

MAY 16, 1996

BMG INTERACTIVE
FORMS STRATEGIC ALLIANCE WITH
VIRTUAL MUSIC ENTERTAINMENT INC.

Far-reaching agreement between the two companies involves content and product development as well as marketing and distribution programs that will make interactive music entertainment a truly global phenomenon.

LOS ANGELES, CALIFORNIA, May 16, 1996 - In a move that signals the marriage of cutting edge music entertainment with revolutionary multimedia technology, BMG Interactive International,based in London, England, and Virtual Music Entertainment Inc.,based in Andover, Massachusetts, today announced a strategic alliance to develop and market a series of new interactive music software titles. The potentially far-reaching agreement joins one of the world's five leading entertainment companies with the world's leading developer of interactive music entertainment software.

The titles developed through this strategic alliance will be published exclusively by BMG Interactive International.They will feature some of the world's hottest music talent within interactive music adventures that incorporate the full reach of Virtual Music Entertainment's proprietary technology, which includes real-time signal processing technology, video, digital audio, and state-of-the-art animation. These adventures will allow consumers, using either the VPick or the VStix game controllers, to play along in real time with their favorite recording artists. It is expected that the first title will ship to retailers in the first quarter of 1997.

"The agreement with BMG underscores the global entertainment value of Virtual Music," Virtual Music Entertainment Inc. President and Chief Executive Officer Bradley J. Naples said today. "Our alliance with BMG will make it possible for our two companies to develop a new generation of breakthrough music entertainment products. Together, we will change the way people play."

According to Gary Dale, President of BMG Entertainment/International, Interactive & Video Division, "This agreement will leverage BMG's experience in the creation of major successes in the music industry and its expertise in the emerging interactive markets with this cutting edge interactive technology. Thus, the potential for BMG and Virtual Music to produce a new generation of interactive music hits is virtually unlimited."

Headquartered in Andover, Massachusetts, Virtual Music Entertainment Inc. is a leading developer and marketer of interactive music entertainment software for all major entertainment platforms - multimedia PC, Macintosh®, and next generation video game systems. The company's entire virtual music product line is designed to provide non-musicians with the experience of playing along with their favorite artists' music in a live sequence of scenes and events. The company's patented technology uses sophisticated real-time signal processing, high quality video, animation, and studio sounds. The privately held company was formed in 1993.

BMG Interactive International is a division of BMG Entertainment International, the $2.4 billion-a-year unit of BMG Entertainment. BMG Entertainment International includes more than 200 active music labels in 40 countries, as well as significant home video and interactive entertainment operations around the world. BMG Entertainment is a division of Bertelsmann AG, the $13.7 billion-a-year media enterprise.