We’ve heard that artists will be offering songs that can only be found through Google search, some of which will be given away for free. Over 20 artists are involved. Beyond that details are still scant, but we hear that the new promotion will start running soon — perhaps later this week.

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MySpace is the big lottery winner here. They bought iLike for $20 million in August. What they got: a talented (literally) team that is starting to fill the executive ranks at MySpace, the biggest music application on Facebook, and, it turns out, a deal with Google that is now sending massive traffic flow directly to MySpace Music.

Our understanding from sources is that MySpace made an offer to iLike without knowing about the Google deal. Supposedly, since iLike was under NDA, all they knew was that iLike had a big partnership opportunity with some big company, nothing more. In hindsight the iLike deal looks smart even without Google. Add that in and it looks absolutely brilliant. I’m no fan of MySpace CEO Owen Van Natta, but I’ll give the man credit here.

Giving Facebook The Benefit Of The Doubt

Facebook decided not to aggresively pursue iLike. They seem to have firmly moved away from any desire to deal with content directly, so this looks less like a mistake and more like a strategic decision.

But one thing is clear. Facebook utterly failed to execute on their music strategy from last year, even while trying to work via a partner application to avoid direct contact with content. Meanwhile, Google stepped in and quickly brought streaming music directly to users, without paying anything at all for it.

iLike CEO and now MySpace exec Ali Partovi, speaking at the launch event last night, didn’t hold any punches against Facebook. He gave huge credit to Google for pulling off a win-win-win-win (labels, google, users, MySpace/LaLa) in the difficult online music space. And he noted that “others have tried or are still trying and have failed miserably.” He was quite clearly referring to Facebook.

The truth is that we don’t know if Facebook flailed on a huge opportunity to get into the Google search stream, or if they just decided they don’t want the hassle of dealing with music directly. We’ll give them the benefit of the doubt. And they certainly had no idea of the Google deal back when they were trying to buy iLike anyway.

Ticketmaster Flubs It

None of Facebook’s excuses (didn’t know about the Google deal, strategically not what they want, etc.) apply to Ticketmaster. The company was a big shareholder in iLike, had a board seat, and certainly new every detail of the Google deal. They could easily have acquired iLike, probably for not much more cash than the $13.3 million they already had invested. But instead they let the company go to MySpace, knowing full well that they were enabling a huge potential competitor.

If Ticketmaster had acquired iLike all that Google music search traffic would be under their control. Click throughs to the iLike site could be monetized through event ticket sales. It would probably be a matter of months, not years, before they got their investment back in additional ticket sales.

And what’s worse is that MySpace now controls all that traffic. MySpace actually has a much more complete worldwide database of concert events than even Ticketmaster has, and they already flow through a lot of traffic to ticket sales at Ticketmaster and competitors. Now that database is combined with iLike’s impressive concert discovery and alert product. When you plug Google search traffic into all of that, its got to be scary for Ticketmaster:

“MySpace has the world’s largest database of live events, and iLike has already built some of the world’s best concert-discovery features available online,” Courtney Holt, president of MySpace Music, wrote in a blog post. “We’re delighted to have implemented the first structured integration of concert data into Google search, and this is only the beginning of our efforts to innovate in the live event space.”

We frankly can’t see any reason at all for Ticketmaster to let iLike go to a potential competitor, particularly with this Google deal locked up. Ticketmaster CEO Irving Azoff certainly knew what was happening. So why did he make such a huge misstep? Possibly because he’s in the middle of a divestiture of topline assets as part of a merger with Live Nation. Azoff is rumored to be looking for a huge personal payout as part of that deal, and may even be spinning himself off along with assets.

In other words, maybe Azoff couldn’t care less about the future of Ticketmaster.

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Key takeaways – Google will integrate new partners as it makes sense. And while MySpace knew about the negotiations between iLike and Google prior to announcing their acquisition of iLike in August, the deal was far from certain. More on that in a subsequent post.

All are below:

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For those that haven’t used Lala before, here’s a quick overview of the service: Lala revolves around the concept of the ‘web song’ — you’re allowed to listen to any song you want totally free exactly once. If you like it, you can then pay 10 cents for the right to stream it as many times as you’d like from then on. This means that you can ‘purchase’ and entire album for around a dollar. You can also use Lala’s Music Mover tool to upload your entire library of MP3s to the cloud free of charge. This is all built on top of a very slick interface, but so far it has come with one downside: because all of the songs are streamed, users didn’t have a way to access them when they weren’t at a computer. Lala’s iPhone app changes that.

The app will be familiar to anyone who has used the iPhone’s native iPod app. The big difference is that all of your songs are streamed from the cloud, so you don’t have to worry about syncing your songs. The app is also better for music discovery than the normal music app, because you don’t have to wait for songs to download — you can instantly add an album to your music library in one click. And it’s significantly cheaper.

Of course, streaming has its own problems. Normally if you’re disconnected from a streaming music service, your music goes dead. Fortunately the Lala app uses caching to store hundreds of songs from your library, which it has waiting in case your connection dies. Lala wouldn’t say exactly how many songs are saved, but they say that the app uses some intelligence to determine what gets cached (e.g. it will generally save songs you’ve most recently added to your library).

So what was the reason for the delay? Lala CEO Geoff Ralston says that “basically everything” had issues, from dealing with licensing from content owners to tweaking the app itself. Suffice to say, it works very well now, and is sure to be a hit among Lala users. It has good timing too: Lala just launched as one of the partners powering Google’s music search service, which is sure to drive a lot of traffic to the site.

Other music streaming apps coming for the iPhone include Spotify, though that isn’t out in the US.

Check out a video walkthrough of the app below.

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Here’s how the new feature will work: Onebox will let users stream songs directly from Google’s search result page, and will also include additional content like tour information and music videos (the actual content shown will vary depending on the partner — more on that later). Enter a query for “Use Somebody”, and you’re going to see a small ‘play’ button in your search result that lets you stream the Kings of Leon song in its entirety, or buy the song. Clicking on the play button will bring up a small browser window that will immediately start streaming your song. If you enter the name of an artist rather than a song title as your search query, Google will present a handful of popular songs by that artist with multiple ‘play’ buttons.

Here’s what the results page looks like, when multiple songs are being presented:

The new feature is being powered by two entirely different services: Lala, the innovative music site that lets people buy ‘web songs’ for ten cents, and iLike, the popular streaming music and artist hub that was recently acquired by MySpace. In an interesting twist, iLike’s appearance in OneBox will be short-lived — MySpace branded widgets will soon be taking their place. This is an important step in MySpace’s transition to being seen as a media/content hub rather than a pure social network. MySpace is also leveraging some of the new features it has recently rolled out since the iLike acquisition, including its artist dashboard and extensive library of music videos — you’ll be able to jump to a music video for a song directly from MySpace’s Onebox results (this is impressive given that the site only launched those services a week ago).

Likewise, this is also a massive win for Lala. We’ve been big fans of Lala since the site relaunched back in October 2008 with a unique business model that lets users build their music libraries in the cloud for cheap — you can purchase an entire streaming version of an album for around 80 cents, or 10 cents per song. The service’s only problem has been establishing traction, and this will certainly help with that. Expect the service’s userbase to see a big jump as millions of people on Google are exposed to Lala for the first time.

The joint partnership comes with a few quirks. Google will basically be doing a coin toss with each eligible query to determine which service will be serving up the widget. That will help the service distribute load and perhaps leaves the door open for Google to include multiple other music services, but I’m not sure it will provide the best user experience — some users may get confused when a feature in one widget isn’t available in the other.

Google VP of Search Products and User Experience kicked off the event,talking about how Google has expanded its search offerings over time, with Images (2201), Book (2003) and Maps (2007). “Music” is one of Google’s top ten searches of all time, as is “lyrics”. But it hasn’t always been easy to actually find music, which is why Google is looking to offer full song streaming directly from Google.

Google has also partnered with Gracenote to provide full lyric search — if you type in the lyrics from a portion of a song, they’ll identify the song. Song purchasing partners include imeem, Rhapsody, and Pandora, who will help with music discovery.

Google passed the baton off to MySpace, with MySpace Music President Courtney Holt outlining how much growth MySpace Music has seen and how happy the site is to be working with Google. Ali Partovi, iLike’s former CEO (and MySpace’s current SVP Business Development) took the stage, first taking the time to congratulate MySpace on acquiring iLike. He was joking, but what he says has some truth to it: MySpace made an offer on iLike before iLike could talk about the Google partnership, which iLike had been working on for a long time. In other words, MySpace lucked out with the deal.

Lala’s Bill Nguyen next to the stage, saying that Lala has always been about finding music, and then discovering more that you might like. He says that for the last ten years, music has been about business models, not discovery. Once you wind up on Lala, you can follow other users and see what they’re listening to.

The new feature will be gradually rolling out to users, with a small percentage (1-5%) having access today and rolling out gradually over the next couple days to everyone in the US.

Here’s the Lala player:

Here’s MySpace’s widget (you’ll be seeing an iLike widget temporarily, but eventually they’ll shift over to look like this):

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Following Google’s announcement of its music product this morning, Facebook is officially enhancing its Gift Shop with a redesign and new categories of gifts and additional gifts for charity, music and sports from developers. The changes will be rolled out to users in the coming weeks

On Facebook’s Gift Shop, you need to purchase credits on the site (via credit card), that cost 10 cents in U.S. currency are are available in 15 different countries. With the enhanced version of the gift shop, you will be able to purchase songs as gifts for your friends. Powered by Lala.com, the gift shop will offer over 8 million songs from a vast variety of artists ranging from Mozart to Beyonce. Web songs cost 1 credit (or 10 cents) each, while full, downloadable, and digital rights management-free (DRM) MP3s are 9 credits each. Some of this money goes to Facebook but Lala takes a cut of every transaction. But you don’t have to have a Lala account to play or receive a song.

So how do Facebook users play their songs form the social network? You can play songs from your news feed or from Lala.com’s platform, which they can connect to via Facebook Connect. If you buy an MP3, you can also download the songs you can play the tracks on iTunes or other music players. Facebook users who can see the music gift on other friend’s feeds can play the song in full once, after which they will be able to play a 30-second clip.

Facebook is also getting a little more sports-friendly by adding branded virtual gifts from professional and college teams. Officially licensed gifts from the U.S. National Basketball Association and U.S. Major League Soccer are now available in the Gift Shop, as well as school-themed gifts from a number of major U.S. colleges ranging from Oklahoma State to Stanford University.

While you can currently purchase gifts from non-profits, like Kiva, Project Red, TOMS Shoes, Charity Water and the World Wildlife Fund, Facebook is now also including gifts via the Causes application. So you can make donations to a cause as a gift for your friends for pretty much any cause supported through the app.

The concept of Facebook as an e-commerce platform seems to be lifting off. PayPal is partnering with Payvment to help any Facebook user set up a retail storefront. Not to mention the immense popularity of virtual gifts on the platform. And with this new announcement, it seems that not only if Facebook opening up a revenue stream, but the network is creating a totally new way for users to socially engage with the platform: through music.

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Matt Ghering, a product marketing manager at Google, has been one of the people talking to the big four music labels about the new service, we’ve heard from one of our sources. And he has supposedly sent these screenshots of the look and feel of Google Music search to various rights holders and potential partners.

The first screenshot shows how a search result might look on Google for a search for “U2.” A picture of the band is to the left of four streaming options for various songs, and the user has the option of listening via either iLike or LaLa. Click on one of the results, and a player pops up from the services that streams the song, along with an option to purchase the song for download.

We don’t know if this is the final look of the service, but it’s definitely something Google has been sending to people to show them what it might look like.

More thoughts on this later as we digest all the information coming in. But one thing is clear – this is a huge win for LaLa and iLike. Both will get massive flow from this deal. And as much as we criticize MySpace, their acquisition of iLike is starting to look sort of brilliant.

Search Results:

iLike Player:

LaLa Player:

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For those who aren’t familiar with the service, blueTunes lets you scan your hard drive for music files and upload them to the site’s servers, which you can then stream from wherever you are. This process would take a very long time (and quite a bit of bandwidth) were it not for a shortcut the site is employing: while you still have to prove that you own your music (the site uses a Java app to check through you music folders), the site only makes you upload songs that aren’t already in its database. In other words, unless you’ve got a really eclectic collection, you’ll be able to transfer your library to the cloud without having to move many files.

The benefits of a desktop client for this kind of music service are fairly obvious. When you’re using a site like MySpace Music, you generally have to keep a browser tab open at all times, and when tabs are grouped together in the browser it can be tricky to figure out which one is actually controlling the music coming out of your speakers. And there’s always the possibility that your browser will freeze as you peruse another site, taking down your tunes with it. Using blueTunes through a desktop app, you don’t have to deal with these problems.

It’s a welcome addition to the service, and it’s nice to see that the startup is still chugging along without having to come up against any legal hurdles. As we noted when we last covered the site, blueTunes’ easy-upload model sounds a lot like the one that was used by MP3.com in 2000, which was later sued into oblivion. That said, founder Nick Alexander says that blueTunes hasn’t had any issues with the labels, and that the company is taking as many precautions as possible.

Another music site that also lets you stream your music library from the cloud is Lala, which we’ve been following pretty closely since the service’s relaunch last year. As with blueTunes, Lala only makes you upload songs that aren’t already in its library, and Lala also has the benefit of deals with all the major record labels, so it doesn’t have to worry about any potential legal troubles.

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The Imeem app has already been submitted for App Store approval and could be released any day, we’re hearing from a reliable source. In terms of what it will offer, you can probably expect it to be about the same as the Android version. That means access to Imeem’s library of music and perhaps more importantly, access to your own collection of songs from the cloud, if you use Imeem’s upload service to put your music on their servers.

Of course, you have to pay for that. But if you’re willing to shell out $99 a year for their most premium plan, it means you can access 20,000 of your songs from your iPhone from anywhere (there are lower-cost version with less storage as well).That’s around 80GB of music, obviously a lot more than an iPhone or iPod touch can hold. But one tricky thing about this on the iPhone is its close ties with iTunes, which means that many of its users probably have some DRM-protected music, which won’t work over Imeem’s streaming service. But I assume the new iTunes Plus, DRM-free variety (which the entire iTunes store was recently converted to) will.

And I’m sure you’ll be able to buy new music you hear on the Imeem app with one click that takes you to the iTunes store on the iPhone. This has been working out pretty well for Pandora.

Cloud-based streaming of music makes a lot of sense. It gives you a single place to access your music from anywhere, without taking up valuable space on your devices. Lala is another service doing this with a still unreleased iPhone app that we got an early look at. It makes so much sense, in fact, that I suspect Apple will eventually get into this game as well. It almost has to with HD movies and television shows at some point because most people simply do not have enough storage space even on home systems to buy that content to their heart’s content — which of course, Apple would love. Naturally, Apple would want to have an option to pull your music off of the cloud to take on trips where you don’t have web access as well — that’s something that won’t work so easily with Imeem’s solution.

Imeem’s iPhone application will undoubtedly have another major downside that the Android version does not: The inability to run in the background. That’s one of the killer features of the Android version — I can turn it on and leave it on while I do something else. Compare this to Pandora on the iPhone which shuts off as soon as you exit it. Seeing as Apple doesn’t allow third-party apps to run in the background, that will be the case with Imeem too.

Still, given the range of music Imeem offers and this cloud-based option, I’m definitely looking forward to this iPhone app. The Android version actually won the Crunchie this year for Best Mobile Application — even beating out Pandora for the iPhone. Look for the iPhone version soon in the App Store.

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How bad are things getting for music streaming startups? We knew that imeem was on the verge of shutting down before getting a last-minute cash infusion from some of its investors, but an SEC filing from Warner Music adds some more details about exactly how dire imeem’s situation is, as well as that of another music startup, Lala.

Warner Music Group, an investor in both imeem and Lala, thinks they are no longer worth much, if anything at all. It wrote down its entire investment in imeem and half of its investment in Lala in the most recent quarter. As detailed in its 10Q report filed with the SEC, it took a $16 million charge to write down its investment in imeem, and an $11 million charge to write down part of its investment in Lala, plus it took another $4 million charge to write down a bad debt from imeem which it never expects to collect. That comes to a total of $33 million down the digital music drain.

But the reason imeem is in such dire financial straits is because of the crushing payments to music labels it has to dole out for every song streamed from its site. It has renegotiated its deals with the labels to pay on a revenue-per-user basis instead of per stream, and Warner’s filing hints at why it had to do so. It appears that imeem had simply stopped paying those per-stream fees, which would explain the $4 million in bad debt. And that was just for one quarter for one label. No wonder imeem nearly ran out of cash. It had to stop paying its bills.

According to comScore, imeem’s U.S. traffic has come down about 25 percent off its peak last July. As of March, 2009 it was at 5.3 million unique visitors in the U.S. and 24 million worldwide. In the perverse world of music streaming licensing, the bigger your audience, the more money you lose.

Update: When imeem raised rescue money from investors, it had to recapitalize. If Warner pitched in, which presumably it did, then it would have had to write down its old investment anyway. If that is the case, then maybe it doesn’t think that imeem is completely worthless, it is just marking its investment to market. With a recap that means marking it down to zero. But any additional investment after the recap wouldn’t be reflected in that write-down. And since you can still stream Warner artists on imeem, it stands to reason that Warner has not entirely abandoned the startup. Where there is music, there is hope.

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TunesBag doesn’t bring anything truly innovative to the table, but it’s always nice to know there are alternatives available, and tunesBag is a strong contender that too often remains under the radar, even if you need an invite code to get in for now.

Today, the company is hoping to change that with the release of an Adobe AIR-powered application (hence available for Windows, Mac and Linux) that brings some of its goodness to the desktop. You’ll still need an invitation code to access the service for now, but hopefully they will open up to the masses soon. We’re trying to get the company to release a number of invite codes for our readers. Update: TunesBag came through with 500 invites. Sign up here or use the code TECHCRUNCH.

The app currently only lets you play tunes from your uploaded music library as well as custom or public playlists from your desktop, and is pretty basic in that sense – it doesn’t even have a volume control option. You can buy music tracks directly from within the tool (through Amazon or iTunes) and share them with your friends on other social networks like Facebook etc., but that’s currently pretty much all there is to it. Most likely, there will be additional features in the future, hopefully mimicking the way the web application currently works (including recommendations, native upload of iTunes and Winamp library, and so on).

For now, check out the web service first and install the desktop application if you like the way it works, and let us know how it goes for both.

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Tonight music-streaming service Lala will be rolling out a number of improvements to its homepage and integrated music player. While the site has had a clean feel since its relaunch last October, it has also been a bit spartan – users had to navigate to various links to find their playlists and songs, and while it looked good it wasn’t as functional as it could have been.

The redesign builds on the site’s persistent music player, which sits at the top of the browser window no matter where on Lala’s site they go. Users can now view a pulldown-menu with a list of songs, and there’s a similar pull down menu for playlists.

Another new addition is the ‘Mix’ button, which allows users to generate a list of similar songs to the one they’re current playing (it is similar to the Genius feature found on iTunes). The feature is great for exploring new songs, allowing users to get exposure to a variety of music they haven’t heard while still retaining control over what they’d like to hear next (radio services like Pandora, while great for discovery, can still be frustrating because they only allow users to skip a limited number of songs).

All in all, it’s a more usable interface, and it also looks much slicker. Other additions to the site include a revamped user profile page and improvements to artist homepages. These are all great, but we’re still itching for the day we’ll get to use Lala’s upcoming iPhone app.

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Online music may be a treacherous space right now, but there are still a handful of music startups that may be coming close to getting it right. One of our favorites is Lala, a streaming music site that allows users to put their digital music library in the cloud, which can then be accessed from any computer. And soon, they’ll be able to access every song they own from their iPhones too, without having to worry about storage capacity or syncing.

Unlike music sites like http://music.myspace.com”>MySpace Music, which largely revolve around playlists and streaming individual albums, Lala is meant to serve as a web-based music library. The site has forged unique deals with every major record label (and many indies too) that allows users to populate their online library with the music they already have on their computer (legally acquired or otherwise). Users simply install the Lala Helper app, scan their computer for music files, and sign into Lala to find their entire music library in the cloud.

From there, users can browse through Lala recommendations and see what their friends are playing. The site has a unique buying model that allows users to purchase ‘web-only’ versions of songs for a mere 10 cents a pop – a price point that is very addictive, but also gives Lala a legitimate monetization scheme beyond advertising. Users can listen to these web-only songs as many times as they want, but only through the browser – if you want to load it on your iPod, you need to pay an extra 80 cents to download it. So while Lala has been fairly impressive until this point, it has still kept users chained to their desks.

That may change soon, when Lala releases its iPhone application that will allow users to stream any song from their music library, whenever they want (provided they have an internet connection).

While some of Apple’s traditional iPods have massive storage capacities, many people have abandoned them favor of iPhones, which offer more functionality but much less space for the money (most people have either 8GB or 16GB models). And given that these devices are also used to store applications and video files, many of us find us having to pick and choose which songs we want to carry around with us.

With Lala, you don’t have to worry about that. The app streams the songs from Lala’s servers, in much the same way Pandora does. But unlike Pandora and similar radio apps, you can chose any song from your music library whenever you want.

Unfortunately, it still may be a while before everyone can get their hands on the app. Lala says that there isn’t any concrete release date for the iPhone application, explaining that it still needs work on a number of fronts. For one, the app still has obvious bugs (some text fields don’t update correctly, and sometimes a button won’t work). But perhaps more important, it sounds like the company may still have some legal hurdles to wrangle, and it also needs to fine tune its monetization strategy. Hopefully it won’t be too long – this app would be a boon for users with large music libraries, and would also offer a huge boost to the Lala service as a whole.

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Through most of 2008 Facebook said on and off record that they had no real interest in their own music service and that third parties like iLike could continue to build their Facebook music applications without fear of competition directly from Facebook.

News leaked in the Fall, though, that Facebook had approached a number of third parties to power the official Facebook music application:

We believe, based on discussions with a number of sources, that Buzznet, iLike, iMeem, LaLa, Last.fm, Rhapsody and other services were contacted and provided with a document (sometimes referred to by sources as a RFP (request for proposal), other times called a term sheet) that outlined certain goals of the new Facebook music service.

The RFP requires the third party service to build and power a new Facebook Music Service that offers free music streaming and playlists, music downloads for a fee, and other music merchandising services such as ringtones, concert ticket sales and physical goods like tshirts (if this sounds like MySpace Music, it’s because it is exactly their model). The service must not only handle front end user requirements but must also be able to handle the very tricky tracking issues required by the labels to monitor music streams and fees.

The RFP also includes onerous termination provisions that allow Facebook to take ownership and control of the service and the user data under certain circumstances. In return, say our sources, Facebook will offer the third party a split on revenues generated from the service.

We’ve heard conflicting accounts of who will pay for the big up front fees labels require to get a music service up and running. Some estimates of prepaid royalty requirements are as high as $100 million, which Facebook is looking to avoid paying themselves. Other sources say that Facebook may be willing to pay these fees if they can’t force the third party to take them on.

Many people, us included, saw this as a new effort by Facebook to tackle the music opportunity. But our sources say it was actually near the end of a year-long effort by Facebook to launch their own free streaming music service in partnership with Total Music. Only when those discussion faltered did Facebook reach out to other third parties.

Total Music And Facebook

Total Music, a joint venture by Universal and Sony BMG, has had Facebook target from the beginning. The labels approach the Internet from two directions. The first is the command and conquer approach, which is how imeem, MySpace and others were neutered. Sue the hell out of whoever dares to host music online, then cut a deal with them that brings in millions of dollars in penalties and fees.

The second approach is what Total Music is all about. The service, which acquired Ruckus to handle the back end, is striving to cut two types of deals. The first is with device makers to allow music to be accessed directly from the device for free. The device makers pay a fee to Total Music, which is passed on to the consumer. The second type of deal is with websites – who get to stream music for free with advertising. The revenue from those ads, plus a lot of user data, is owned by Total Music.

That’s the deal that Total Music approached Facebook with. Facebook would get free streaming music (while rival MySpace paid a fee per song played). Total Music would serve advertising and keep all the revenue. Facebook would also hand over user data to allow Total Music to port playlists to supported devices and other services.

The deal never happened and looks like it never will. Some sources say it was because Facebook didn’t want to hand over all the revenue and user data, and so they reached out to third parties to get a better deal. But others have a different explanation which makes more sense. Warner Music refused to allow their music to be accessed for free.

Warner, a big shareholder in LaLa (a service we’ve raved about) – they took most of the company’s recent $20 million venture round. They’ve been pushing LaLa heavily to Facebook.

But LaLa’s model requires users to pay to stream music, a non-starter for Facebook and any serious rival to MySpace.

That leaves Facebook in a tough spot. Venture dollars to fund a big new streaming music service have dried up, so its unlikely that any third party will be able to pay the tens of millions of dollars it will require to get a MySpace Music-like deal done. The Total Music deal is being blocked by Warner. And LaLa’s business model just doesn’t work with what Facebook wants to do (free).

That means Facebook either needs to pay, or Warner needs to budge. Neither may happen, and rumor is that Total Music’s political capital at Universal and Sony has all but dried up as they struggle to complete the Facebook or any other deal.

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MOG has a history of doing cool new things around music. The service today includes a media player plugin that records and analyzes your music habits, a website that has a dedicated page for every artist, album and song with user generated reviews and posts, and an advertising network that provides revenue for 300 top music blogs. Users can also stream music via an excellent front end to Rhapsody.

All of that brings about 5 million unique visitors a month to their network, and the company says they should bring in about $5 million in revenue in 2009.

Now they’ve created a new music streaming product that breaks away from Rhapsody and its limitations. Like competitor ilike, which also uses Rhapsody, users can only stream 25 songs per month for free. That doesn’t compete well with free streaming services like MySpace Music, iMeem, Last.fm and others.

The new service, dubbed Mog 3.0 internally, is a fully free music streaming service that lets users play whatever songs they like on demand. The user interface is as good or better than LaLa, a service that we love despite the fact that streaming isn’t completely free. Founder David Hyman and VP Product T Jay Fowler gave me a demo of Mog 3.0 earlier today.

The service combines the ease of use of LaLa with free, which is enough to get our attention. But it also has a recommendation service that rivals Pandora when it comes to discovering new music.

The interface is genius. Users search or browse songs, artists or albums and then start listening to the music. More songs from that artist are suggested and added to the results as you play the songs. And if you move the slider to the right (see image to right), related music is added as well. That lets the user decide if they want a playlist-driven on demand music experience, or to change things up and add Pandora-style related music to the mix.

It doesn’t stop there. Users can also create playlists with the best tool on the market – it’s easier to create and share playlists than even Project Playlist offers, and users can associate a name, description and image with each playlist as well.

MOG plans to make other changes to the service as well, including adding streaming music to content pages, and creating user profiles that highlight the music you listen to and like. It brings in the best social aspects of Last.fm.

The product is compelling.

But it will quite possibly never launch.

MOG has label deals with Sony BMG and Universal locked up. They’ll provide streaming music rights for free in exchange for a revenue share. But Warner and EMI remain on the sidelines, and MOG says they won’t launch unless and untill they have all four major labels under agreement.

I, for one, really hope to see MOG 3.0 launch sometime soon. And if the last two labels don’t jump on board, MySpace should strongly consider buying MOG. MySpace has label deals locked up but their product continues to have unacceptable technical glitches. The music player is very slow to load and songs have an annoying tendency to skip during playback. Perhaps the MOG team can put that right for them.

More screen shots below – top image is the playlist tool, below that is a user profile page.

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But they’re also in a very vulnerable position right now. Litigation with the other three labels continues, and they’ve been banned from both MySpace and Facebook after those labels threatened to sue them, too. Embedding music playlists on social networks is the key to Project Playlist’s continued growth, and that door has been closed.

And Project Playlist’s competitors have certainly noticed.

Legitimate music startups like LaLa and Imeem, who have deals with the major labels and also let users embed playlists onto the major social networks, are working on tools, we’ve heard, that will let Playlist users port their music lists over to the new services and embed them onto Facebook and MySpace. LaLa confirmed to me that they are working on such a tool.

If I were these services I’d try to cut an advertising deal with Facebook and MySpace that targets just those users that used to have Project Playlist playlists embedded on their profiles. I imagine they’d get a very nice conversion rate.

Users are fickle, don’t expect them to just wait things out as Project Playlist scrambles to get their label litigation settled and deals finalized. If those users see an easy way to get their favorite songs back on their profile, they’ll take it. And they may never go back to Project Playlist.

Update: Mixaloo says they’ve already released a tool that does this, see comments below.

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Seems like a non-starter, right? But wait, there are a few reasons why LaLa has a real chance at success. First, they have an absolutely exceptional user experience, which was completely relaunched in October (and we loved it). Unlike all of the other services, LaLa gets you to the music you want to hear as quickly as possible, whether it’s through search, browsing or suggestions from friends. Creating and embedding playlists is dead simple, too (see below). The other services mentioned above take more steps to find music. Last.fm is the worst interface, it’s very hard for new users to figure it out. And both Imeem and MySpace Music have their issues too – too many clicks to get to music, and MySpace doesn’t allow embedding.

Second, LaLa is completely advertising free. It lets you play any song once without paying. After that you have to pay $0.10 to add it to your collection and stream it whenever you want. But you get 50 songs free when you sign up, so users can get a feel for the service before paying anything. If you choose to download a MP3 of the song for $.89 (which is already cheaper than the other services), you get that $.10 streaming fee back.

Frankly, the exceptional user experience probably isn’t enough to compete with the free services. But LaLa also has its Music Mover client for Mac and Windows machines. Download it and it identifies all of the MP3s and paid iTunes songs on your hard drive and adds them to your collection on LaLa. You don’t have to pay the $0.10 to listen to those songs stream. What this means – you can listen to all that stolen music you’ve been gathering since Napster days on any computer with an Internet connection. You don’t have to worry about copying the songs from one hard drive to another to access them.

That sort of makes LaLa perfect. You can listen to all the music you already have, and then get new music recommendations from your friends. Listen to it once and then add it to your collection for $0.10.

They also have an iPhone app coming that lets you listen to all your music streaming on that device. No longer will you be limited to the small hard drive on your iPhone or iPod and forced to make tough decisions on which music to upload.

LaLa also has plenty of money to let the whole music scene shake out. While competitors lose money on every stream, LaLa has a business model that they say doesn’t burn cash. And they still have $20 million of unspent venture capital in the bank.

The company tapped former Yahoo Chief Product Officer Geoff Ralston as their CEO in late 2007, and his product experience shows. The company has the best streaming music product on the Internet today, and a business model that doesn’t burn cash.

Competing with giants like MySpace and possibly Facebook isn’t trivial. And those competitors will eventually catch up. But they have to serve a certain amount of advertising to make their models work, a handicap that LaLa neatly avoids. Don’t count them out any time soon.

It’s the joy of using products like LaLa that keeps me excited about startups.

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Call me a skeptic. When Lala came to our offices last week trying to convince me that music was heading to the cloud, and that they were going to help lead the transition, I wasn’t convinced at first. The company has floundered for years, moving from a CD swapping service to a failed music hub that shut down last summer. But now they’ve completely redesigned and are coming back with an advertising-free music site that makes me think that they might be onto something big here.

At first glance, Lala resembles most other music stores. You use a search box to find your favorite artists, and can buy DRM-free music for around 90 cents (there is some slight variation depending on the song). Each page features an artist profile, their albums, and playlists that other users have included them on. It’s standard fare, and while the DRM-free music is nice, it would have a tough time competing with Amazon on its own.

Fortunately Lala’s real potential stems from its integrated media player and your web library (which looks a lot like iTunes, but in the cloud). At the top of the screen is a music player that will continue playing whatever song you listen to, no matter where you navigate on the site. And you’ll have lots of content to play: users will be able to play any song on the site’s massive catalog in its entirety exactly one time free of charge. The limitation sounds restrictive at first, but it costs only 10 cents to buy a “web song” – giving you the ability to stream that song as many times as you’d like in the future. And if you decide to buy the normal MP3 later, that 10 cents will go towards your purchase.

This 10 cent price point is incredibly addictive, and is essential to Lala’s monetization strategy (users are given 50 free web songs to get them used to the idea). CEO Geoff Ralston explains that other sites like imeem or MySpace Music need to inundate users with advertising in order to make money – something that isn’t conducive to a good music listening experience. Conversely, Lala wants you to listen to as much music as possible in the hopes that you’ll keep clicking that addictive 10 cent “web song” button, and is forgoing advertising entirely. The result is very refreshing.

Lala has also done some serious legal wrangling to help you populate your online library. Using the site’s helper application (available on Windows and Mac), Lala can scan your iTunes music library and add every song you already own to your Lala web library, essentially giving you online streaming access to any song you already have on your computer. And best of all: Lala will give you free, unlimited streaming access to every song in your library, even the ones you’ve acquired in ways that weren’t quite legal. Ralston says that the record labels resisted this at first (”why should we give them access to something they stole”), but eventually came to the conclusion that users weren’t going to buy something they’d already downloaded.

Lala has signed all four major labels and 175,000 independent artists to its extensive library. There are still occasional songs that aren’t totally licensed (you can’t buy the 10 cent versions of any Led Zeppelin songs, for example), but this will likely change in the future.

The real question is whether or not music really is ready to make its way to the cloud. It seems that everything else has been – be it Email and desktop applications like Word and even rich media like photographs. With the increasingly wide spread of high speed mobile devices like the iPhone it seems only a matter of time before users stop worrying about syncing and transferring music and simply stream it from a central server. I’m not sure users will be comfortable about not owning full copies of any of their websongs (what happens when Lala goes down?), but for 10 cents, it’s worth a shot.

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Then in 2007, in response to iTunes, Doug Morris at Universal Music had the brilliant idea of bundling music subscriptions into the price of digital music players. The effort was called TotalMusic, and the idea was to get all the record labels on board, until the Department of Justice launched an antitrust investigation that killed the idea. Or so everyone thought.

Multiple sources in the Web music industry (including two CEOs and another executive) have told us that the music labels are mulling over another attempt at creating their own digital distribution business, or at least one they can control. Details are sketchy, but the buzz is increasing around a project to create a free, advertising-supported streaming service that would be licensed or white-labeled to other Websites. Each stream would link directly to a paid digital download. Some believe that a revived TotalMusic and this project are one and the same.

TotalMusic, Like, Totally Doesn’t Want To Die

Indeed, TotalMusic lives on, although in a different form. A search on LinkedIn for “TotalMusic” returns four people who list it as their current employer (Ted Ferguson, Troy Denkinger, Robert Broome, and Derek Reeve). All four live in Chicago and all four previously worked at MusicNow, another music service that changed hands between Circuit City, AOL, and ultimately the new Napster (not a good omen). A couple job listings, like this one posted on July 15 for a senior software engineer, describes TotalMusic as being based in Herndon, VA (near AOL old headquarters):

TotalMusic, LLC is a new digital music platform offering the integration of music discovery, streaming and downloads into a wide variety of online and mobile environments. We have solid financial backing and a staff with decades of combined experience in online music.

Compensation is competitive, and the work environment is highly distributed with most members of the team telecommuting, however, our Headquarters is located in Northern Virginia, and have a group in Chicago and Boston. So if you prefer an office environment, Northern Virginia should be your choice.

Free, As in Music

The idea of combining ad-supported streaming with paid downloads is very similar to the upcoming MySpace Music (due to launch next month), except that it will be available to other sites. In that sense, it is closer to what Rhapsody has done, powering music streams for Yahoo Music, iLike, and MTV.com, and trying to up-sell full subscriptions or paid music downloads.

Full-track, on-demand, advertising-supported music streaming (as opposed to randomly-sequenced Internet radio) is gaining steam as a business model. The music labels have licensed their catalogs for uninhibited streaming to imeem and MySpace Music. And a number of other sites, including Lala and Last.fm, have signed more limited deals that still provide access to a broad range of artists. For example, Rhapsody offers a limited version of free streams (25 songs a month) to their songs.

What the music industry should do is make music streaming free. Treat it like a marketing expense to sell digital downloads, concert tickets, and other items. That’s probably not going to happen. But what could happen, and what Web music startups are hoping for, is for the music industry to lower its licensing fees for streaming music.

Or At Least Disruptive Pricing: The $1 CPM

Right now the going rate for streaming music is a penny per track, which comes to an effective CPM (cost per thousand) of $10. That means that music streaming Websites need to be able to charge more than $10 CPMs just to cover the music licensing. And $10 CPMs are not economical. A $1 CPM would make more sense.

As one music startup CEO says, “The only guys who have negotiated terms are guys who have gotten sued.” That is certainly true for imeem and MySpace. With others, the threat of a lawsuit might have been enough to bring them to the table. Although, interestingly, as part of its deal with Warner Music or some time after, imeem received a $15 million investment from Warner, it was revealed today in Warner’s quarterly SEC filing. (Warner also invested $20 million in Lala).

Yet even imeem—which attracts 26 million unique visitors a month to its site, according to comScore, and claims 70 million to 100 million total uniques if you add up its widgets all over the Web—does not expect to make money based on ads related to streaming music alone. It is trying to create a bigger experience that includes videos and photos, and sells other forms of display advertising and sponsorships. MySpace Music, similarly, has its own economies of scale.

For everybody else, offering on-demand streams won’t become feasible until the licensing fees come down. Whether or not TotalMusic is the answer they are waiting for remains to be seen. But don’t count on it. Industries are rarely able to disrupt themselves.

Horror Stories Tend To End Badly

Another, more sinister strategy could be to simply continue to make life difficult for other music streaming services, and let TotalMusic come out with its own a cost-advantaged model. This would be aimed squarely at iTunes as well.

Although it is actively being developed with a rumored time horizon of three to six months, TotalMusic could end up being just a hedge. One source believes the project has yet to receive the final green light from the music-label bosses.

And even if TotalMusic does launch with a disruptive economic model, there are still the antitrust issues to deal with. Since there are only four major music labels, anything that smacks of price-fixing or collusion will be torn down by the Justice Department. The labels need to be very careful about this. (One story I heard: when MusicNet was forming itself among the record labels, it had to rent out an entire hotel floor with a different label in each room, and the lawyers had to go from room to room to seal the deal because the music companies couldn’t be in the same room together).

TotalMusic needs to get around the collusion issue somehow, while still offering a comprehensive catalog. The music industry is desperate to figure out how to shift from physical to digital distribution and it will just keep trying things until it is all spent out. But like any good horror movie, there will always be another sequel.

(Photo by darkpatator).

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We wrote about this product a week ago, although the final launch product has additional features we did not cover in that post. The service is available here.

The company is pursuing music licensing deals with labels and will make music available as those deals are closed. Warner Music is their first partner, and will make their full digital catalog available.

The new LaLa is aimed squarely at iTunes. Users can listen to full songs as often as they like. They can buy the physical CD with a couple of clicks, or they can (in a week or so) download the song. The songs are DRM-free, but are downloaded directly to the iPod. The only way for a user to then remove them is to hack the iPod. So while the songs do not contain DRM, the user is effectively barred from consuming the song cross-platform. The company says that future versions of the service will allow CD burning as well.

Prices for song downloads will be $0.99, the company says, but will vary for high-use users. If you listen to a lot of music on LaLa and participate in the community, song prices will be lower.

The digital tracks will be watermarked .aac files. They won’t stop you from transferring the songs to friends iPods, but the service will only allow one licensed copy of that watermarked file to work on Lala at a time.

The service launch is part of huge bet Lala is making on the future of online music. Licensing fees alone are expected to cost the company $140 million over the next two years. They’ll need an average revenue of $65 per user per year to cover the cost. But Lala sees the new service as an essential update to the way we experience and purchase music.

Lala’s bet is based on two beliefs: people want to own their music, and they want to sample it in the most interactive way possible. They saw the radio’s passive sampling experience evolving into Napster’s on demand experience. But Napster was illegal, and didn’t let you easily sync music where you wanted it. Lala’s new service promises a higher quality and more comprehensive service than has ever come before.

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LaLa already runs a cd swapping service and recently started to let users listen to live concerts on the site.

Now they are going to let users listen to on demand music on the site in addition to its other services. There are a number of paid services that do this already, and a handful of flat out illegal ones as well.

This is an extremely expensive business – unlike services like Pandora that have to pay only a fraction of a cent when they play a song (and it still hurts them), on demand streaming rates are more like $0.01 per song. That works out to an average of $0.17/user/hour, and there is no way to cover those costs with advertising alone.

It’s also much more difficult to work through the legal mess to offer this kind of service. Unlike Internet radio, which is covered by the DMCA and which has rates set by regulation, there are no laws to cover on demand streaming. LaLa must negotiate directly with the big labels. The one-cent per song I mentioned above is an estimate by an industry insider of what Yahoo and others pay. Labels can charge more or less than this, and they also like to get a minimum fee per listener/month of around $6. Unless LaLa puts listening restrictions in place, heavy users will go way beyond that. Our understanding is that the labels will also only negotiate one year deals, and if they see any profit on the table at the end of the term they will grab for more.

So how will LaLa cover its costs? The company says they are going to sell CDs to users. Like a song? Click a button and get it sent to you. They say that if they can get each user to buy one CD per month on average they will break even. That may be true, but the average music buyer in the U.S. buys two CDs per year. So LaLa will have to get heavy music buyers to the site to move that average up.

The company has been working on this for some time and is reportedly still in negotiations with labels to get the rights to music. Last year they took over an Internet radio station and began selling CDs to listeners based on songs they like. Hopefully they have enough data to prove their model out.

LaLa raised $9 million in capital from Bain and Ignition Partners.

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The free live shows are a great addition to the site and join their other four offerings: terrestrial radio, citizen radio, music swapping, and new music sales. The backbone of their site still remains CD swapping, though. For a deeper description of the service see our previous coverage. Their internal numbers indicate they have 300,000 registered users and conduct 12,000 CD trades a day, with 30% of their revenues consisting of new music sales, and are cash-flow positive.

We had originally likened Lala to Peerflix. However, Lala differs from the movie swap site in that they have gone to great lengths to not only be a marketplace but to also build a community around enjoying music, similar to the way Yelp has built a community around reviews. Along this line of thought, Lala’s John Kuch says their goal is to “democratize the discovery and distribution of music by putting it in the hands of the people”. The sentiment is that experiencing and interacting with music is key to people’s purchasing habits. They struck out on this path in several ways, incorporating social networking features into the account, bringing terrestrial radio to the internet (mostly independent radio and their crown jewel WOXY), and finally allowing an expanding group of beta users to create their own radio stations.

To start streaming user generated “citizen” radio stations, Lala had to jump through several legal hoops left over from the days of terrestrial radio and the DMCA. Stations’ playlists can be no shorter than three hours before they repeat a song. You can only place two songs from any artist on a station. You can’t listen to your own station with the login you used to make it. Each play of a copyrighted track also means a payment to the SoundExchange. While meeting those conditions, you can join their over 400 other citizen stations by creating a playlist of songs from their internal archive of 1.8 million albums add in your own recordings via plugin.

Lala’s continued focus on creating community through adding more ways to experience and talk about music makes it an interesting play in my mind.

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Lala users identify CDs they want mailed to them for $1 plus 75 cents shipping. Other users who have those CDs available for swapping are notified and put them in the mail. Lala keeps the dollar and donates a portion of it (as much as $50k in a month so far) to a Foundation that supports artists. Users can also chose to purchase CDs for immediate delivery.

Now the company is taking over WOXY to allow users to create streaming radio stations that will in turn inspire CD swapping and purchases. Station listeners can click to request a swapped or purchased CD that a streaming track originates from. The music available for creating the radio stations is licensed from a third party. Lala plans to invest between $5 and $10 million into the station. The company received $9 million in funding from Bain and Ignition last year.

It appears that Lala is quickly gaining traction with users. The company reports about 10,000 CD swapping transactions per day. Comments left on the site appear in numbers that many publishers would be envious of. The company says CD sales have been doubling monthly and hit gross margin profitability last month. Only 2% of CD swapping transactions result in complaint reports and users are rated in a karma system.

Perhaps the strangest thing about Lala is a delusional, yet legally required, request that participants delete digital copies of music from the CDs they mail away in swaps. I’d be curious to see how often that happens.

Internet radio licenses open a number of interesting, if legally tricky, possibilities like this. See also Faces.com, (our coverage) an Australia based social network that combines user playlists, online music sales and an internet radio license. (Disclosure: Faces is a TechCrunch sponsor.) See also our coverage of Swaptree if trading physical objects is your thing.

I think I like Lala, though the integration of CD swapping, music purchase, internet radio and DRM compliance is taking a while for me to wrap my brain around. Apparently that’s not the case with Lala’s growing user base though. This is definitely a company to watch.

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It looks to be exactly like Peerflix but for CDs. You will tell lala what music you have. Other members can request it from you, and you send it directly to them using a postage-prepaid envelope supplied by lala. They charge $1 for the swap, and $.20 goes directly to artists.

You aren’t supposed to send copies of CDs (originals only), and lala asks that you do the “right thing” and remove songs from your iPod or PC once you’ve sent a CD to another member. While I’m all for the revenue sharing with artists, pleeeease, lala, get over yourself and drop the condescending, do-the-right-thing-as-defined-by-the-RIAA messaging.

I have never written about Peerflix – I am a former member and was deluged in spam from the service and never found anything good on the site to request (people keep the good stuff and put little known movies into the service). My hope for lala is that they get much better inventory from users and don’t try to enforce the “no copies” rule too strongly. These will be very difficult things to do.