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MySpace Launching Free Online Music Service

Make room, iTunes. MySpace is hoping to shake up the digital music scene.

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.

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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."

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