Vevo, powered by Google Inc.s YouTube and featuring music videos, concert footage, interviews and original content, allows record labels to attract premium-prices for ads while controlling how music is viewed and distributed online, Morris said. The effort to reverse the industrys decline may be Morriss final salvo as he prepares to hand over the reins at Universal to international music head Lucian Grainge.

“The music business has been taken advantage of for years,” said Morris. “This is our opportunity with Vevo to take back control of our product.”

Vevo is co-owned by Vivendi SAs Universal Music, Sony Corp. and the Abu Dhabi Media Co. Terra Firma Partners Ltd.s London-based EMI Group Ltd., the label of Norah Jones and Coldplay, is near a licensing deal to provide material to the site, a person familiar with the plans said last week. Negotiations to add material from Warner Music Group Corp. are ongoing, people familiar with the matter said.

Record companies are trying to capture the growth in online ads and offset an almost 50 percent decline in U.S. album sales from 2000 to 2008, as measured by Nielsen SoundScan. Global ad spending for online videos is projected to more than triple to $7.6 billion by 2012, according to New York-based researcher eMarketer.

YouTube

YouTube, which generates more than 1 billion views per day, is projected by Credit Suisse to lose $470 million in 2009. The company sees Vevo as a way to expand beyond advertising by licensing its software, said Chris Maxcy, director of content partnerships at YouTube.

“We do think its going to be a good business opportunity,” Maxcy said.

Universal Musics revenue fell 5.2 percent to $2.78 billion in the 9 months through September, even as digital sales surged 21 percent. At Edgar Bronfman Jr.s publicly traded Warner Music, digital sales grew 10 percent for the year ended in September while overall revenue fell 9 percent.

New York-based Warner Music rose 17 cents to $5.27 on Dec. 4 in New York Stock Exchange composite trading. The shares surpassed $30 in 2006. Vivendi gained 49 cents to 20.50 euros in Paris and has lost 12 percent this year. Sony added 35 yen to 2,510 yen in Tokyo.

Elephants Mating

“I dont think most advertisers want their product next to a video of elephants mating,” Morris said.

User-generated or pirated videos make up about 90 percent of streams on YouTube, said David Hallerman, a senior analyst at eMarketer.

“Theres very little targeting that goes on,” he said. “Even though it is such high-quality content.”

Record companies have often battled with YouTube as they sought to increase payments. Universal receives “a percentage of a penny” each time a clip is viewed, Morris said.

Last year, Warner Music removed its videos from YouTube after negotiations over royalties failed. In March, YouTube in the U.K. and Germany blocked access to premium videos by the four big labels after talks with collection societies collapsed.

Profit Goal

It isnt clear when Vevo will become profitable, said the sites CEO, Rio Caraeff. Vevo will focus on attracting a large audience and will eventually expand beyond advertisements as a revenue source, he said.

Source

Exclusive deals with retailers typically give artists more money than a traditional record contract, while helping chains such as Walmart and Target Corp. get more customers to the stores. Kiss joins the Eagles, Guns N Roses, AC/DC and Pearl Jam in striking deals with retailers to distribute music.

“This is the world we live now where the artists get a much bigger percentage of sales,” said Steve Gordon, a music industry attorney in New York.

Walmart, based in Bentonville, Arkansas, declined to disclose financial details of the Kiss release. The company reached similar deals with The Eagles, AC/DC and Journey. Target, based in Minneapolis, is exclusively releasing Pearl Jams new record, “The Fixer,” and Best Buy Co. put out Guns N Roses “Chinese Democracy.”

ITunes Gains

Walmart was surpassed last year by Apple Inc.s iTunes as the biggest music retailer in the U.S., an indication of the ongoing consumer shift to digital purchases. U.S. sales of CDs and other physical music products dropped 31 percent last year, while digital sales increased 17 percent, according to the International Federation of Phonographic Industry.

This year, Walmart shares have fallen 7.6 percent after they were the best performer on the Dow Jones Industrial Average in 2008. The stock declined 9 cents to $51.79 on Aug. 14.

Kiss, which started in the early 1970s as a New York-based rock band called Wicked Lester, is still led by its co-founders Gene Simmons and Paul Stanley. Over 32 years, Kiss has recorded 36 albums and sold more than 75 million copies, according to its Web site, http://www.kissonline.com.

The band drew attention for its costumes and face paint, smoking guitars and fireworks on stage. Its site sells items such as Kiss baby jumpers, wine, 11-inch rubber footballs, necklaces, shoes and mugs. In May, Kiss performed on News Corp.s Fox television show American Idol, the most-watched primetime program in the U.S.

The Kiss Brand

“Ive been impressed with the way the Kiss brand has been able to reinvent itself over the years,” said Greg Hall, 38, Walmarts vice president of media and services. “Id say the Walmart mom loves Kiss and looks fondly back on that as one of the first concerts she went to.”

Eduardo Castro-Wright, the head of Walmarts U.S. stores division, attributed the drop in part to consumers being more selective in buying discretionary items and to stronger-than- expected declines in grocery prices. He spoke during a recorded earnings call last week.

Walmart plans to sell Kiss merchandise other than the new CD/DVD set, Hall said. The specifics of those products are still being worked out, he said.

“As we talked to other merchants within Walmart, theyre just as excited about this as the music team is whether it be toys or apparel or candy,” said the music buyer Welch, 34. “Theyre saying this brand resonates with Walmart customers.”

Source

U.S. entertainment and media companies hope a World Trade Organization decision this week requiring Beijing to lower import barriers will make more legal products available in China, and perhaps diminish demand for pirated goods.

But theres a long to way to go in a country where a pirated DVD is easily available for a third of the price of a movie ticket - often before the movie opens in Asian cinemas.

“I dont care whether its pirated or legitimate so long as they look good and are convenient,” said Linda Nie, 30, a researcher at a Beijing university who recently bought a pirated Chinese-language edition of Thomas Friedmans “The World is Flat.”

She said 70 percent of her books and DVDs at home are pirated. “The pirate stuff is good quality and well-wrapped. Its so easy to get. Its available everywhere.”

The Chinese can also easily access music and video for free through file-sharing sites, particularly when they have high-speed broadband connections, as many Chinese now do.

The WTO rejected Beijings policy forcing U.S. media producers to route business through state-owned companies. But China is considering an appeal, and it may ultimately take the threat of sanctions to truly open the worlds largest marketplace to American entertainment.

The Chinese import restrictions have been blamed for making fewer legal goods available and thus helping pirates profit and proliferate.

“Consumers buy pirate copies maybe because its very slow for legitimate copies to enter the Chinese market,” said Xiao Wei, manager of the FAB music and movie store in Beijing. “For example, pirate copies of the movie Slumdog Millionaire were available right after it won the Oscar award, but we just started to sell the legitimate copies recently, half a year later.”

Trade groups want Beijing to allow prosecution of those who sell small quantities of pirated goods and make enforcement more consistent, instead of relying on periodic crackdowns and going easy on violators the rest of the time.

China has a population of 1.3 billion, but sales of legal entertainment products have been relatively small. Consider music: China has nearly 30 times more people than South Korea, but sales are 40 percent smaller, at about $82 million last year, according to the International Federation of the Phonographic Industry.

Anti-piracy efforts have helped boost legitimate sales in other Asian countries in the past, but those gains were short-lived because new copying technology quickly took hold, the federation says.

But many underground disc makers simply migrated to the Chinese mainland. Plus, disc copying on personal computers became easier, and the Internet made distribution relatively painless. Hong Kong music sales came to just $56 million last year.

In China, as piracy intensified, music sales fell from $389 million in 1992 to about $80 million in 2000, IFPI stats show. Sales rebounded as China earned entry into the WTO, but quickly dissipated.

Today, Chinas largest search engine, Baidu.com, provides thousands of links to unauthorized songs for streaming and download. Legitimate alternatives have been offered, and the WTO decision could help lift barriers to foreign investment in online music ventures. But so far success has been limited.

The Wawawa Music Store launched an online subscription service in October, offering subscribers 88 song downloads from independent musicians every month for a relatively affordable 20 yuan, or about $2.90.

But even at 3 cents per song, “piracy has been an impediment” to legitimate companies hoping to make money, said Mathew Daniel, vice president at Wawawas Chinese distribution partner R2G.

Source

Unlike recorded music, publishing is buffered from falling CD sales by its more diverse revenue sources. Owners can earn cash returns of 7 percent to 20 percent or more a year, depending on the songs and how theyre marketed, investors and dealmakers say. Jacksons June 25 death has heightened interest in his stake in a catalog that includes Beatles tracks.

“Music-publishing assets can be equivalent to great real- estate investments,” said John Frankenheimer, co-chairman of Loeb & Loeb, a Los Angeles-based law firm involved in several sales. “You have to do the analysis to understand the difference between prime beachfront property, a distressed asset with great potential and a run-down property.”

Publishers own rights to lyrics and melodies. The biggest owners continue to be record labels, such as Vivendi SAs Universal Music Group and EMI Group Ltd. In addition to KKR, recent buyers have included private-equity firms Pegasus Capital Advisors LP and Spectrum Equity Investors, the Dutch pension fund Stichting Pensioenfonds ABP and Credit Suisse Group AG.

Conservative Investment

“I view it as a very conservative investment,” said Rodney Cohen, co-managing partner at Pegasus Capital, a $2 billion fund with offices in New York. “They will always have value, and as long you buy properly you have a tremendous amount of downside protection and tremendous upside potential.”

Pegasus bought Spirit Music Group in April, gaining songs from the Grateful Dead, Elvis Presley, Frank Sinatra and Billie Holiday. Spectrum Equitys holdings include Bug Music, which oversees roughly 250,000 copyrights.

Publishing isnt risk free, said Donald Passman, an entertainment attorney with Gang, Tyre, Ramer & Brown Inc. in Beverly Hills, California. The health of the music industry, falling retail sales and smaller ad budgets contributed to a 40 percent to 50 percent drop in the value of publishers in the past five years, he said.

Skittish Business

“The music business is skittish, and there is a potential that income will drop for the next few years before the ship rights itself,” said Passman, author of “All You Need to Know About the Music Business.”

Falling values are attracting investors, Passman said.

The group clinched its first deal last month, buying Los Angeles-based Crosstown, owner of an 8,000-song catalog that includes Ricky Martins “Livin La Vida Loca” and Sheryl Crows “All I Wanna Do.” The seller was the investment arm of Minneapolis-based grain processor Cargill Inc.

“Our goal is to create a sizable new entrant in the music- publishing business over the next five years,” Philipp Freise, a KKR director responsible for European media investments, said in an interview. “We will compete against the incumbents.”

Jacksons death has spurred interest in his stake in Sony/ATV Music Publishing, according to Rob Wiesenthal, chief financial officer of the Tokyo-based Sonys U.S. unit.

Not for Sale

“Theyre inquiring,” Wiesenthal said in a July 22 interview. “But its not for sale.”

The late singer began building his portfolio in 1985 with the $47.5 million purchase of Beatles tracks. His half stake in Sony/ATV is worth at least $750 million, Billboard said. The estate also controls MiJac Publishing, comprising much of Jacksons solo work.

EMIs publishing would attract investors if it became available, said Steve Gordon, an industry attorney in New York.

Source

Holt, then a marketing vice president with Interscope Geffen A&M, urged bands such as Nine Inch Nails, Weezer and The Black Eyed Peas to nurture MySpace profile pages too. The bands streamed new songs for free on their MySpace profiles, and some had the best album launches of their careers.

“The artists loved it and it created a Pied Piper effect for the fans,” Holt said. When it came to music promotion, Holt realized, MySpace was like a “fire hose.”

Now, Holt is being asked to turn MySpaces attention to a music industry in flames - and in the process, to improve the mediocre finances of MySpace as it tries to fend off rival Facebook.

Three months ago, Holt, 40, took charge of the recently revamped MySpace Music, a joint venture with the major recording labels. The service now lets MySpace users queue up multiple songs to play for free on their profile pages, rather than one song as in the past. Users also can create playlists that let them swap songs with their friends.

MySpace Music overhauled its dedicated home page, which promotes album releases and tours and corrals 5 million blinking artist profiles into genres. And the songs now carry links that let people buy downloads of the tracks from Amazon.com Inc.

The setup gives MySpace and the music industry a share of song-download sales from Amazon, and it could bring new revenue from ads. Next, Holt plans to make MySpace into a seller of concert tickets and band merchandise, while better targeting songs, ring tones, artists and ads at the people who will probably be interested in them.

Through these efforts, MySpaces vaunted music-promoting power could help patch the leaks that have sprung up in the recording business. Even with sales of song downloads on the rise, the music industry is not recouping the revenue lost from falling sales of compact discs.

MySpaces objective will be to find “half a dozen new revenue streams” that will help recording labels move away from just selling song downloads and CDs, said Rio Caraeff, executive vice president of Universal Music Groups digital strategy unit. “Wed rather have 10 healthy revenue streams than one big revenue stream prone to disruption.”

First, though, Holt has had to do damage control.

The new music player was clunky and slow when it launched. Fans complained that too few songs were available and that playlists they created couldnt handle enough songs.

Holt directed the creation of a sleeker, faster-to-load version that debuted last month, and he removed the cap on the number of playlists that could be created.

Black Eyed Peas rapper will.i.am credits Holt with being “one of the few guys that knows the way through the jungle” of digital music.

But Holt has the weight of multiple masters on his back. Aside from the music industry, Holt has to satisfy billionaire Rupert Murdoch, whose News Corp. bought MySpace for $580 million in 2005 but has yet to eke out more than a meager profit from it.

MySpace also has to intrigue its users enough to hold off social networking rival Facebook, which lapped MySpace a year ago in overall users worldwide, and now has 200 million to MySpaces 130 million.

MySpace is still the largest social network in the United States, with 70 million users a month, but Facebook is catching up quickly with 61 million, according to tracking firm comScore Inc. MySpace Music could be the differentiator it needs: Facebook lacks a music player and relies on third parties to create them for members to download.

MySpaces revenue is estimated to be nearly three times Facebooks, or about $585 million in 2008, according to research firm eMarketer. But MySpace has yet to lift News Corp.s Fox Interactive Media unit past the $1 billion in annual revenue that Murdoch predicted it would reach by last summer.

Source

Global music sales slumped more than 25 percent this decade and the industry says 95 percent of digital music is pirated, even after efforts including lawsuits against illegal downloaders. Spotify shows evidence of charming users and lessening the allure of pirated songs, according to researcher Music Ally.

“Spotify will have an impact on overall levels of piracy,” said Paul Brindley, chief executive officer of Music Ally. “The key things about Spotify are that its free, it does work so incredibly well and its very intuitive.”

Spotify, or “spot” and “identify” combined, recommends songs and lets users build playlists. Founded by Swedes Daniel Ek and Martin Lorentzon, it has offices in London and Stockholm.

The site, which sells tracks through a third party, is now online in Spain, France, Sweden, Norway and Finland, and plans to expand to the U.S. It competes with new music services such as Slacker, Pandora and We7. U.K. newspaper The Guardian has even linked to playlists its created on the Spotify site.

Spotify Buzz

Spotify is “the closest weve had that could be a mass market online destination,” said Mark Mulligan, a music analyst at Forrester Research Inc. in London.

Access to streaming services from a wider range of devices will allow users to listen to their preferred music anywhere.

“Eventually there will come a point where consumers will simply tune in to music through a device at home, in their car, in hand or the workplace,” said Rob Wells, senior vice president of digital strategy at Universal Music Group International in London.

Costs to access such services may be bundled into an Internet subscription tariff, the price of a new phone, television or even car, Wells said.

“Sites like Spotify offer a convenient way for potential music buyers to sample music before purchasing a song,” said Brindley at Music Ally. “What were also seeing in our research is that streaming music services as of yet are not particularly harming sales of music either.”

Spotify gives momentum to the “cloud theory,” which predicts consumers will stream music from a source online, rather than own it by buying CDs or buying digital copies and storing it on hard drives.

“Our model is based on access and not ownership,” said Jon Mitchell, Spotifys U.K. sales director. “Music streaming is the future.”

While ad-supported music sites such as Spotify will be an increasingly important part of the music industry, the notion that lots of people will suddenly pay more for music subscription services is unlikely, Mulligan said. An estimated 0.1 percent of Europeans pay for music subscriptions, he said.

“The generation that grew up with CDs wont unlearn to buy, but the new generation that grew up file-sharing and not buying arent going to start buying,” Mulligan said.

Strongest Tools

“These types of social media are highly competitive with illegal file-sharing,” said Michael Nash, Warners executive vice president of digital strategy and business development.

Sites such as Spotify allow users to access the music for free rather than searching for it on BitTorrent and downloading it illegally, Mulligan said. Spotify and the Comes With Music mobile-phone music service by Nokia Oyj, the worlds biggest handset maker, “are the two strongest tools that people have to drive a genuine alternative to piracy,” he said.

Source

Other record labels such as Warner Music Group Corp., Sony Music Entertainment and EMI Group Ltd. have also been contacted about the plan although they are not part of the talks. Universal is a division of Frances Vivendi SA.

The discussions began about a month ago but are still in the preliminary stages, said the people, who spoke on condition of anonymity because the discussions are supposed to be confidential.

News of the talks was first reported in The Wall Street Journal.

The discussions began at the behest of Universal Chief Executive Doug Morris, who has pushed to earn more revenue from music videos on its artists, from U2 to Lil Wayne, one person said. Universals licensing arrangement with YouTube, which began in 2006, was set to expire at the end of March, which provided another reason to revisit their agreement.

Universals channel on YouTube is by far the sites most popular, generating some 3.6 billion views. The sides are considering forming a separate destination site under the working title “Vevo.”

Record labels, faced with declining sales of compact discs, have been experimenting with a number of different ways of distributing their music online, such as getting paid for streams on News Corp.s MySpace Music site.

But YouTube has run into a number of problems from content providers.

In December, Warner Music pulled all of its music from YouTube, saying the payments it received did not fairly compensate the label or its artists and songwriters. Even Neil Young jumped into the fray, arguing on his Web site this week that YouTube had underpaid Warner compared with other labels, resulting in a shutdown that “penalized” artists like himself.

Viacom Inc. also sued YouTube for $1 billion, saying the site infringes on copyrights of its shows, including Comedy Centrals “The Daily Show with Jon Stewart” and Nickelodeons “SpongeBob SquarePants” cartoon.

YouTube declined to comment directly on the talks but issued a statement saying, “we are always working with our partners to find creative ways to connect music, musicians, and fans.”

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Source

In New York there is a vineyard right in the middle of downtown called City Winery. They offer among other things, a change to squeeze your own grapes with traditional methods, hand on vines like back in the old country.

Dr. Mark Pruzanski, president of biotech firm Intercept Pharmaceuticals, plucks out an unripe grape with a sticky hand. He’s living his pet fantasy of making his own wine.

Pruzanski signed up weeks ago to make a private-label barrel of cabernet, which will yield roughly 270 bottles. Cost: a $5,000 basic membership fee, plus $3,280 for grapes and $425 to $1,100 for aging, depending on which kind of oak barrel he chooses.

Yet in this financial climate, how many other people will pay $8,000 to $10,000 to make a barrel of wine? It’s not as though people will be producing bargains — the cost works out to about $30 to $35 per bottle.

“This is a nice distraction from what’s going on in the financial markets,” admits the 40-year-old West Village resident. “It feels like a mini-vacation, steps from my Tribeca office.” He’s helping me sort while waiting for his cabernet grapes from Napa’s Betinelli Vineyards to arrive later this evening.

There are now dozens of places in the U.S. where you can make your own wine. The well-known leader is four-year-old Crushpad in San Francisco, though several other California wineries and more than 20 small New Jersey enterprises also offer do-it-yourself options.

City Winery founder and Chief Executive Michael Dorf, who created and ran the Knitting Factory, a New York indie music venue, has a surround-sound vision of his very urban winery. He plans a sophisticated, one-stop wine experience, complete with food and music.

Not Just a Winery

As winemaker David Lecomte maneuvers a forklift truck carrying another load of grapes around shiny fermentation tanks, Dorf tells me that by December, the rest of the winery’s 21,000 square feet of space will include a restaurant and wine bar with 500 wines (50-plus by the glass), a cheese bar, winemaking classes, private parties and concerts on the huge stage.

“Imagine the pleasure of eating around your barrel, listening to music around your barrel, bringing your friends to try your barrel samples,” he says.

Dorf, dressed in old jeans, wine-stained running shoes and shapeless tan sweater, chews gum as he fills me in on his wine epiphany.

“On a trip to Napa, I kept thinking how great it would be to have a music concert inside a winery,” he says, “And then my brother and I got a couple of custom barrels of wine made at Ridge Vineyards. My friends who tried our Shed Red said, `I’d like to make a wine like that.’ I thought to myself, is it possible to do it in Manhattan?”

Music Connections

His music connections helped line up quality grapes. Napa winery owner Spencer Roloson, who had met his wife at the Knitting Factory, sold him some and provided entree to prime growers.

City Winery offers a range of grapes from top vineyards in California, Oregon and New York’s Long Island and Finger Lakes region, plus state-of-the-art equipment, an experienced staff winemaker and the chance to be as involved as much (or as little) as you wish. Pruzanski will help move his fermented juice to barrel next month, blend the wine in early 2009 and bottle it a year later. (Grapes from Chile and Argentina arrive next spring.)

Newbies won’t go wrong. French-born winemaker Lecomte, who’s done stints at California’s Herzog Wine Cellars as well as Rhone Valley producer M. Chapoutier, is in charge throughout the process. He’s also making 100 barrels for the winery itself.

New Revenue Streams

Will City Winery be a hit? The idea that music events and high-end private parties could generate additional revenue convinced Matthew Sperling, managing director of equity capital markets at Jefferies & Co., to become one of the winery’s first investors. It was a decision he says he came to “over many bottles of wine.” And, of course, he’s making his own barrel.

Dorf admits that “the credit crunch is affecting my nerves.” One investor has pulled out, and the $15,000 premier barrel category hasn’t had any traction in the past three weeks. Still, a third of the barrels have been sold to a diverse group of New Yorkers, from group president of JP Morgan Mutual Funds George Gatch to supermodel Petra and artist Chuck Close.

Dorf is taking no chances. This week he’s launching a “community barrel” category (about $1,500) for those willing to share with five like-minded strangers.

Source: Bloomberg

The music business combination four years ago made Sony BMG the world’s No. 2 record label, generating savings and pre-empting other industry consolidation. But the venture’s cost-cutting didn’t keep pace with falling CD sales, and the two companies’ digital strategies didn’t jibe.

So they called it quits, and Sony bought out its partner for $900 million in a deal that closed Oct. 1.

Selling its 50 percent stake will let Bertelsmann refocus on its growing TV, magazines and book publishing businesses. And full ownership of the music venture gives Sony control of a medium it can use to drive electronics sales, just as it is using wholly owned Sony Pictures to help sell the Bravia line of TVs. The new company is called Sony Music Entertainment Inc.

“It’s nice to see Sony at least trying to line up some of their content efforts with their hardware,” said Michael Gartenberg, vice president of global strategy for Jupiter Media. “Up until now, the left hand never seemed to know what the right hand was doing.”

The music venture was so dissonant, it often helped Sony competitors.

In one case, Bertelsmann insisted the venture shop music videos to Microsoft Corp.’s Xbox 360 instead of Sony’s PlayStation 3 gaming unit “to make sure it’s a fair deal” for Bertelsmann, said a Sony executive who asked not to be identified because those negotiations were private.

As a result, PlayStation 3 customers have to do without music videos from Sony BMG.

In another case, Sony BMG was the last major record label to join the PlayNow Arena online music store from Sony Ericsson - Sony’s own mobile phone venture. PlayNow launched in August in Scandinavia.

“(Sony BMG) has been by far the toughest agreement to get in place,” said Victor Fredell, Sony Ericsson’s content acquisition manager of music.

Fredell blamed the 50-50 ownership of Sony BMG, which meant neither company had a clear upper hand.

“They were just different in their approach to the business,” said Jay Cooper, a music attorney who represents Sheryl Crow and other artists. “I think they managed to put together a strong company but unfortunately they had two different kinds of philosophies.”

In contrast, Sony easily made “Hancock” from Sony Pictures available via the Internet for Bravia TVs for just $9.99 before the DVD release. The idea is that such exclusive offers - this one includes a Blu-ray disc - will boost sales of Bravias and the $299.99 Internet modules made by Sony Electronics.

Sony already this month has moved to streamline the music group, merging two labels that had been run separately by Bertelsmann and Sony.

Next, the Sony executive said, will be a push to better integrate Sony music with Sony Ericsson mobile phones, which had a paltry 8 percent market share in the second quarter.

Even Apple Inc. has yet to perfect the mobile phone music business: Its iPhones can’t directly download iTunes music, for instance.

“This is their opportunity to find some way to challenge Apple in a space that they don’t completely own yet,” said Jupiter’s Gartenberg.

Whether Sony can succeed is an open question.

Next Thursday, Nokia Corp. launches its much heralded “Comes With Music” venture in Britain, a service for which a year of free downloads comes with the purchase of a phone. Prepaid models start at about $229.

Whether any mobile music offerings gain traction depends a great deal on fickle consumer tastes - for Nokia’s all-you-can-eat system, or Sony’s and others’ pay-as-you-go regime.

“And then you have to assume that people want music on their phones,” said Russ Crupnick, a digital music analyst for NPD Group. “I think the jury’s still out on that.”

Last year, the entire music market - measured by album sales, or the number of tracks divided by 10 - shrank nearly 10 percent, and it is down about 5.4 percent so far this year. All the labels, including leader Universal Music Group, Sony, third-place Warner Music Group Corp. and EMI Group PLC, are making more music available cheaply on a wider array of platforms and devices, in the hopes digital downloads will push the needle the other way again.

And that digital strategy matters more for Sony than for most, since it is close to slipping to No. 3.

Its share of the U.S. music market is now 22.8 percent, down from 28.5 percent in 2004, according to Nielsen SoundScan, while Warner’s rose to 21.1 percent from 14.7 percent.

Source: AP

In a bid to spruce up its popular online hangout, MySpace plans to flip the switch Thursday on a much-anticipated service that will give its roughly 120 million users free access to hundreds of thousands of songs from the world’s largest recording labels.

The catch: the music can be played only on personal computers connected to the Internet and listeners have to tolerate advertising splashed across the screen. Anyone who wants to transfer a song to a portable device like Apple Inc.’s iPod will have to buy the music through Amazon.com Inc.’s year-old downloading service, which sells songs for as little as 79 cents apiece.

Unlike much of the material at Apple’s iTunes store, the music sold through MySpace’s new service won’t contain the protections that limit how many times a track can be copied.

MySpace is hoping to set itself apart from iTunes even further by allowing its users to create an unlimited number of playlists containing up to 100 songs apiece - a sharing concept similar to music services already offered by Imeem and Last.fm.

If MySpace’s plan pans out, people will regularly post different playlists on their profiles and expose their friends to new music.

The recording labels are betting these implicit recommendations will cultivate more interest in more songs and eventually generate revenue to help recoup some of the revenue that has evaporated as CD sales have plunged from $12 billion in 1999 to a projected $5 billion this year.

“We have to unlock the social value of our music,” said Michael Nash, executive vice president of digital strategy and business development for Warner Music Group Inc.

Besides Warner, the three other major recording labels - Sony BMG Music Entertainment, Universal Music Group and EMI Music - also are opening up their libraries to the MySpace service, which will operate as a joint venture with the music industry. Sony ATV/Music Publishing and The Orchard also have joined the MySpace alliance.

MySpace is starting with several hundred thousand songs, but expects to surpass the size of Apple’s iTunes store, which stocks 8.5 million songs.

“When all is said and done, we will have the richest catalog of content on the Internet,” boasted Amit Kapur, MySpace’s chief operating officer.

The music labels are hoping that the MySpace service can lessen the dominance of iTunes, which has sold more than 5 billion songs since its 2003 inception and now ranks as the largest music retailer. Apple has vexed the music industry by refusing to allowing higher prices to be charged for the most popular songs.

Several other services, mostly peddling monthly subscription fees for access to large music libraries, have tried to tackle iTunes with little success. The list of foiled challengers include Yahoo Music, RealNetworks Inc.’s Rhapsody and Napster Inc., which this month agreed to be acquired by Best Buy Co. for $121 million.

The difficulty developing a major alternative to iTunes hasn’t seemed to discourage the music labels yet. Rio Caraeff, who heads Universal Music’s digital efforts, predicted services similar to the MySpace joint venture will sprout at other social networks.

“We know there is a large portion of people who love music but don’t want to buy music,” Caraeff said. “We have to figure out a new business model that serves that audience while providing remuneration for the labels and the artists.”

MySpace appears to be in a better position to take on iTunes because its site has always emphasized music. About 5 million bands and singers have MySpace accounts, and two-third of its users stream music on their profiles.

In MySpace’s early years, the music industry lashed out at the site as a haven for pirated songs. Universal Music even sued MySpace for copyright infringement; the case was settled in April to open the door for the new joint venture.

Despite its musical bent, MySpace isn’t positioning its service as an iTunes killer. “We see this as more of a complement to what Apple is doing and create even more demand for digital music devices,” said Chris DeWolfe, MySpace’s CEO. “And we think it can create an ecosystem for both music artists and labels to make more money.”

As it tries to become a hot spot for sharing and hearing music, MySpace also hopes to sell more brand-driven advertising and establish its Web site as the go-to spot for buying concert tickets and music merchandise.

The strategy is another prong in MySpace’s efforts to drum up more online revenue for Rupert Murdoch’s media conglomerate, News Corp., which bought the site for $580 million in 2005.

McDonald’s Corp., State Farm Insurance, Toyota Motor Corp. and Sony Pictures are sponsoring the music service’s launch.

Maintaining the advertising momentum won’t be easy because commercials haven’t always resonated on sites devoted to socializing.

“The big question is whether they can change their environment so people will want to do their shopping as well as their gossiping (at MySpace),” said Forrester Research analyst James McQuivey. He doubts the music joint venture will become a major source of advertising because studies have shown people often don’t watch the computer screen when they stream music over the Internet.

If MySpace and the participating music labels intend to finance the service with advertising, McQuivey predicted they will have to permit audio commercials to be played every two songs or so. DeWolfe, though, said MySpace doesn’t plan to allow that because users find it too intrusive.

Even if the music service isn’t an immediate music maker, MySpace needed to do something dramatic to regain its competitive edge, said Pali Capital analyst Richard Greenfield.

Although it remains the Internet’s largest social network, MySpace increasingly finds itself being upstaged by Facebook Inc., whose decision to host a wide variety of outside applications - including some music programs - has helped nearly quadruple its audience in the past 18 months to about 90 million users.

MySpace’s “biggest challenge is finding new things for their users to do,” Greenfield said. “You have to make sure people have a reason to stay on the site. You don’t want people getting bored.”

Source: AP