MySpace forms music venture with big labels

NEW YORK (Reuters) - News Corp’s MySpace, the world’s largest social network Web site, said it has formed an online music venture with three major recording companies in a challenge to Apple Inc’s dominant iTunes Music Store.

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Vivendi’s Universal Music Group, Sony BMG Music Entertainment and Warner Music Group have minority stakes in the new MySpace Music venture announced on Thursday. Financial terms were not disclosed.

MySpace Music will offer free music and video streaming supported by advertising, paid-for MP3 downloads, ringtones for cell phones, concert ticket sales and merchandise.

Chris De Wolfe, chief executive of MySpace, said the launch date of the new service was “fluid” with commercial features being added to the site over the next three to four months. He said MySpace is in talks with more music industry partners to offer their services on MySpace Music.

“We’re talking to all the big ticketing companies as well as the small ones,” De Wolfe told Reuters in an interview. He declined comment on EMI, the fourth big music company, which is not in the initial deal.

MySpace will integrate its 5 million artist profile pages with a range of new commercial services in a “360-degree” offering for the 30 million music fans who use the site.

While the online teen hangout has been wildly popular with both music fans and artists, its main role has been promotional until now.

“It goes from being a promotional vehicle to being a commercial vehicle,” MySpace Chief Operating Officer Amit Kapur said on a conference call to announce the venture.

MySpace Music is seen as a potential rival to iTunes, which takes more than 70 percent of digital download sales.

The music industry, concerned about the influence iTunes wields in the digital market, wants to develop MySpace Music into a strong competitor.

“This gives a great new lease of life for the download market,” said Thomas Hesse, Sony BMG president of global digital business, in an interview with Reuters.

Sony BMG is jointly owned by Sony Corp and German media group Bertelsmann AG.

He said MySpace Music could eventually offer a “premium subscription” service, but gave no details and said it was up to MySpace to make that decision.

Forrester Research analyst James McQuivey said MySpace Music was the right step for music companies, but noted, “Apple will not be affected for the first few years because Apple’s iTunes store lives on the strength of Apple’s devices.”

He added, “One implication of this is that Apple may decide to improve its store experience, but I don’t honestly see it trying to compete as a social network.”

For MySpace, it was important that the songs not be locked with copy protection software, known as digital rights management, which prevent songs bought by fans from being played on different devices. Kapur said songs bought on MySpace Music should be “very portable” and work on Apple’s iPod and other devices.

The deal was agreed late on Wednesday after Universal Music agreed to settle a 2006 copyright infringement lawsuit against MySpace. A source familiar with the negotiations said MySpace had agreed to pay Universal as much as $100 million to settle.

De Wolfe said MySpace is currently seeking a chief executive or president for MySpace Music. A source close to one of the music partners told Reuters if MySpace Music is successful it could be spun-off as a stand-alone company.

Editing by Brian Moss and Tim Dobbyn