Amazon leads investment in music site AmieStreet

NEW YORK (Reuters) -AmieStreet, a digital music site that prices songs of new artists according to their popularity, said on Monday that Amazon.com Inc. is leading a first round of investment in the start-up.

Started last October by three Brown University graduates, AmieStreet allows musicians to post songs with a variable pricing model, which is different from the one-price model used by Apple Inc.'s popular iTunes Music Store.

A new song on AmieStreet.com is initially priced at zero cents. The song is automatically given a starting price after users begin to download the song. The price rises gradually with popularity, to a maximum of 98 cents.

"The idea of having customers directly influence the price of songs is an interesting and novel approach to selling digital music," Jeff Blackburn, senior vice president for business development at Amazon, said in a statement.

Terms of the investment were not disclosed. AmieStreet said Amazon led the round, which included a few private investors.

Amazon said in the spring it will open a digital music store by the end of the year. So far it has announced it will sell music from one major record company EMI Group and a large number of independent labels.

The vast majority of individual songs sold on iTunes cost 99 cents each regardless of their popularity.

Executives at Warner Music Group and other music labels have complained that songs should not all be sold at one price, but Apple has refused to budge on the issue though iTunes does have varied pricing on some albums and promotions.

AmieStreet co-founder and chief marketing officer Joshua Boltuch told Reuters the new funding would allow the start-up to expand its social networking features.

"We really wanted to do a better job of displaying the networking going on the site," he said.

Boltuch said the company hopes to offer more services to communities that have developed on the site as fans share or recommend songs or artists to others.

Existing social networking sites like MySpace and Bebo also serve as a promotional and marketing service for artists trying to build a fan base around their network pages.

AmieStreet earns most of its money from sharing revenue from music sales. According to its Web site, up to 70 percent of the price of a song or album goes to the artist. The company would not say how much music sells or if it is yet profitable.

Boltuch and his co-founders Elliott Breece and Elias Roman, graduated from Brown last year and had been running the company out of their shared house in a Long Island suburb of New York, with early funding from friends and family.

Boltuch said the new funding would also be used to expand their new office space and facilities in New York.

Some months after the site's test launch, the three founders were invited to Seattle in the spring to meet Amazon executives, including founder and chief executive Jeff Bezos, to discuss how they might work together.