Expected MySpace service to compete with iTunes

MySpace did not return calls for comment.

During the last year, the four major labels have warmed to the idea of allowing users to share music on social networking sites, inking deals with Last.fm and imeem for a cut of advertising revenue. Music is the central connector on both sites: Users create and share playlists with their favorite songs, find and add friends based on their music preferences, listen to full-length songs on demand and purchase downloads through links to Amazon and iTunes.

CBS-owned Last.fm reported a 92 percent jump in U.S. users in the span of the last month, making it one of the fastest-growing music networks. Last.fm now claims 21 million unique visitors per month, close to the 23 million unique visitors of rival imeem, which has also seen strong growth in the last year.

ROOM FOR GROWTH

But only a minority of consumers use social networking sites to access music. According to NPD Group, just 14 percent of Internet users report getting music through social networking sites in 2007. Among teens and college-aged users, the proportion is 25 percent.

Execs at imeem and Last.fm shrugged off MySpace’s impending entrance. "MySpace is a bit late to the table, to be quite honest," Last.fm co-founder Martin Stiksel said before adding, "MySpace is always a force to be reckoned with."

Forrester Research analyst James McQuivey predicted in a recent report, "The End of the Music Industry As We Know It," that in five years social network-enabled music purchases will be the primary way people buy music.

Stiksel believes the ad-supported model is an even better way for consumers to get music and for labels and artists to get paid.

"When you buy a CD, the artist and the label get paid once," he said. "On Last.fm, music gets monetized perpetually every time someone presses ’play.’"

Imeem is pushing its business as an alternative to piracy for a young audience that isn’t purchasing music.

"Social networking has the opportunity to be the best hope for the online music experience for the fans, the artists, the industry," imeem chief marketing officer/head of business development Steve Jang said. "If we can do it in a controlled way where we’re getting marketing and promotion and also revenue, that’s great. It will eat away at a lot of illegal usages online."

Music social networking still has its challenges, the biggest being whether users will put up with ads to hear their favorite songs. Execs from imeem and Last.fm say users don’t mind ads so long as they don’t get in the way of music playback.

"They certainly have a tremendous opportunity," NPD VP/senior analyst Russ Crupnick said. "On the other hand, nobody has really done a particularly good job so far of challenging Apple. The thing about iTunes with younger consumers is that linkage back to the iPod. It’s hard to separate the device from the music storage and software application."

McQuivey points out that even if social networking does emerge as a dominant model for listening to music, it could benefit Apple by selling more music online, which could help sell more iPods.

Reuters/Billboard