Yesterday, CBS sent out a press release touting the success of Last.fm’s month-old redesign, citing a 20 percent increase in unique visitors and a 36 percent increase in total minutes between June and July. Despite a few bugs on the day of launch, the redesign seems to be paying off. But why is CBS so keen on beating its chest when it comes to Last.fm?

Ever since CBS bought Last.fm in May, 2007 for $280 million, it’s been under pressure to justify the purchase. At the time of the purchase, Last.fm was running neck-and-neck against social music network imeem and music radio service Pandora.. Today, imeem is killing Last.fm (see Google Trends for Websites chart above), and Pandora is still holding its own.

Since CBS cited comScore numbers, though, let’s look at those. In June, 2007, the first month under CBS ownership, Last.fm has 2.5 million unique U.S. visitors. A year later, in June, 2008, it had 2.4 million. In other words, it had gone absolutely nowhere. In July, after the redesign, it had 2.9 million. Meanhwhile, during the same time period, both imeem and Pandora doubled to 7 million and 4.8 million unique U.S. visitors, respectively. And these numbers don’t include imeem’s widgets, which the company says reaches about four times as many people as its site does on a worldwide basis.

And in terms of time spent on each site (engagement), imeem is heads and tails above both, with visitors spending 295 million minutes on the site in July, compared to 56 million minutes for Pandora and 20 million minutes for Last.fm.

The comparison with imeem isn’t completely fair because it is a broader social network centered around sharing videos and photos as well as music, although music is its main driver. (In fact, it is leading the move towards advertising supported music streaming, with a more comprehensive catalog than Last.fm’s). And Last.fm isn’t doing so well against Pandora either, which is a more direct competitor.

So did CBS totally screw up its acquisition of Last.fm, or will the redesign be enough to put it back on track?

The music industry’s attempts to create its own digital distribution business is like a bad horror movie. It just keeps coming back no matter how badly bludgeoned it gets. Back in 2001 in response to Napster, the music labels launched two competing music download sites, PressPlay and MusicNet (the latter became a white-label music service called MediaNet. Meanwhile, Pressplay was bought by Roxio, and formed the basis for the current version of Napster). Both were utter failures.

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).

Last.fm has a new look today that simplifies the navigation of the main site and makes finding music easier. Or at least, it would make finding music easier if the site wasn’t so buggy. (At least for me. I couldn’t even log in without getting an error. This may be due to fans rushing to check out the new features, or simply poor planning).

The new features a library of songs that you can now add to with a single click, instant recommendations based on the song you are listening to, and charts showing the popularity of each recommended song.

The site is now organized by music, videos, charts, and events. And for each song, there is increasingly the ability to play the entire song.

At the top of the page is a search bar, where you can enter a song or artist and hit play. That’s very Songza of them.

Music-streaming service Last.fm is now paying unsigned artists royalties for every song played on its service. Since the company announced the program last January, 170,000 70,000 artists and small music labels have signed up for it and uploaded 450,000 tracks.

What Last.fm is doing here is creating an alternative to the official royalty-collecting organization for musicians (i.e., SoundExchange). Last year, the royalty rates for music streamed over the Internet were raised, making it more difficult for ad-supported music startups to stay in business. Last.fm got bought by CBS, so it’s not in danger of going under. And for any song owned by a label or artist who participates in SoundExchange, Last.fm continues to pay the going Internet radio royalty rate. But it is beginning to bypass Sound Exchange by giving new, unsigned artists an alternative.

By cutting out the middlemen (labels, SoundExchange), Last.fm claims that artists that sign up for the program will receive more than twice the royalty rate they would see if the same song played on commercial radio. That’s because the money goes directly to the artist. (The total royalty, though, is less than what it pays SoundExchange). The royalty that Last.fm is paying unsigned artists is equivalent to 10 percent of the advertising revenues associated with their songs (update: in certain cases, see below). Musicians get a quarterly check, and can withdraw the money once it reaches $10.

We’re not talking a lot of money here, a few fractions of a penny per song. But as the online music industry grows, and along with it online advertising targeted at music listeners, these numbers in aggregate could start to become meaningful.

More importantly, it creates a direct economic link between Last.fm and up and coming artists that have not yet been discovered or signed by a label. The program is also appealing to tiny labels that don’t participate in SoundExchange because they are too small or it is too much of a hassle. (Anyone who already collects royalties through SoundExchange is not eligible for the program). Of the 170,000 signups so far, 30 percent are labels. And daily artist account creation in general is up 60 percent since the announcement in January.

Since it is Last.fm’s program, it controls the royalty rates it pays out, which it can adjust according to how much advertising revenues these songs generate. Now, does anyone actually want to listen to these songs and ill musicians shift over in massive numbers from the labels to this sort of direct arrangement? That is what will determine how disruptive this really is.

Update: Last.fm is offering tiered royalty rates. From the FAQs:

* If your track is played on our free radio service you will accrue a 10% of the Share of Last.fm’s Net Revenue (see the definition of “Share” and “Net Revenue” in the terms and conditions) from the free radio service.
* If your track is played on our personalised premium radio service, you will accrue the greater of either 10% of the Share of Last.fm’s Net Revenue from the personalised radio service, or US $0.0005 for each complete transmission on the personalised radio service.
* If your track is played on our free on-demand service, you will accrue 30% of the Share of Last.fm’s Net Revenue from the on-demand radio service.
* If your track is played on our premium on-demand service, you will accrue the greater of either 30% of the Share of Last.fm’s Net Revenue from the premium on-demand service, or US $0.005 for each complete transmission on the prepaid or subscription on-demand service.

Even on the Web, radio is local. People still tune into their favorite college or hometown radio station from hundreds of miles away. Today’s relaunch of AOL Radio (in beta) embraces that aspect of radio in many ways. First and foremost is its partnership with CBS Radio, which is replacing XM Satellite as the provider of music for 150 radio stations on AOL Radio (AOL itself continues to program another 200). Along with providing much of the music people can listen to for free, CBS is also taking over selling the ads. CBS sales teams are already selling local radio ads, and now those teams will be selling ads on AOL Radio as well. CBS Radio’s ability to sell local ads was major reason why it won the partnership deal, especially with online music royalties increasing sharply. Lisa Namerow, the general manager of AOL Radio, tells me:

The royalties have gone up significantly. We had to reevaluate our business. We needed to partner in order to monetize radio better. We have grown advertising year-t0-year 100 percent, but with the increasing cost of royalties, we need to do a better job by leveraging local markets and advertisers. CBS has a string foothold in that local sales market, with over 140 sales teams.

That statement is an eye-opener for any music service hoping to make money from advertising. If AOL Radio, with three million unique listeners per month (according to Namerow), is having a hard time, how are smaller ad-supported music startups supposed to survive? And affiliate links are not going to cut it. Every song on AOL Radio has a link to iTunes or Amazon, yet Namerow cautions that “those commerce links are a very minor revenue source.”

So how does the new AOL Radio stack up versus other free music services on the Web? It is not bad for basic radio-listening, but is lacking any social features beyond the ability to share a station via email or AIM. It is definitely a vast improvement over the old AOL Radio, which didn’t really work that well in most browsers other than Internet Explorer. The new AOL Radio pops up in a separate Flash player that works on IE, Firefox, and Safari. There is plenty of music and sub-genres to choose from. Some stations: Rock Anthems, ’80s Alternative, Salsa, Rockabilly, All Stevie Wonder, Sports, and Opera. You can also search stations by city (that local thing again). The player highlights 10 preset stations, but you can manage an unlimited amount of presets and change them around.

AOl has also done a better job of deep linking into AOL Music. If you mouse over any album cover, links to album, artist, and song information appear. The service also keeps a history of every song you listen to so you can learn more at your leisure. There is also a pause and skipping ability. You can skip six songs per hour. And right now there are about four video ads per hour. I don’t mind the ads as long as there aren’t too many. But one suggestion: don’t subject people to an ad at the very beginning before they can even listen to one song.

Two more suggestions: 1) Make personal music recommendations based on my listening habits; 2) Integrate with CBS-owned Last.fm for more music choices and social recommendations.

Update 6/12/08: AOL Radio also designed an app for the new iPhone, which was one of the winners of the Apple Design Awards. The iPhone App notes your location and serves up the nearest CBS tradio stations, so it acts like a regular radio in that regard.

Sonific, an online music playing servuce similar to Pandora and Seeqpod, is to close May 1 as the company was unable to obtain licensed music rights in a way that made the service viable.

Gerd Leonhard, Co-Founder & CEO writes:

1) There are countless startups providing access to any and all music streams without any license whatsoever. However, when we approached the major record label decision makers in order to obtain licenses for some of the music in their catalogs we have routinely faced demands for very large cash advances and fixed per-stream minimum payments, pressure to give them ‘free’ company equity, and requirements of utterly bizarre usage restrictions. It seems that the industry’s major stakeholders still prefer this turf to remain unlicensed rather than to allow real-life, workable and market-based solutions to emerge by working with new companies such as Sonific. This is not the way forward.

2) We therefore had to realize that a company that wants to provide interactive streaming music services must either a) risk the constant complaints of their users, due to the lack of hit content b) proceed to use any and all music (this is routinely done by allowing users to upload their own MP3s) without the required licenses, and therefore be at the total mercy of the record labels at some point in time, and c) build a huge audience very quickly, based on having the content available - permission or not -, and then very quickly sell themselves to a large company that will take care of placating the labels while the money is plenty and the pockets are deep.

Unfortunately we don’t like any of these choices.

Sonific joins the TechCrunch Deadpool

thanks to Andrew Watson for the tip

MyPlayList, a bootstrapped startup from Agentbleu, a Englishman living in France, combines streamed music and Flickr for a free music service that delivers visual as well as musical abundance.

MyPlayList uses the XSPF xml format to combine the images from the Flickr image sharing service, with music that is hosted across the internet, and similar to Seeqpod does not host or cache any of the music to avoid any copyright issues.

To use, users enter the name of any band or singer, and the system automatically compiles a Flickr - music combination, or suggests an existing playlist if one is already in the system. Registered users can create custom playlists and the site offers various embedable versions as well.

We covered GrooveShark’s new player yesterday, and MyPlayList works in the same space (along with Seeqpod). The visuals delivered by MyPlayList is a nice touch, particularly in full screen mode. Mark the site down as another free music provider that may challenge the likes of the play five times then buy Last.fm and the geo-retarded Pandora.

Music sharing and sales startup Grooveshark has launched Grooveshark Lite, a flash app that provides access to all the songs in Grooveshark’s library.

For those unfamiliar with the company, Grooveshark allows users to upload and share their music collection with friends, but with a twist: every song uploaded can be purchased DRM-free with the uploader getting a cut of each sale (the rest goes to the record companies, and the service is 100% legal).

The new Grooveshark Lite player is not dissimilar to what Last.fm offers, but without the silly restrictions like being able only play the single five times. It also helps that Grooveshark has a huge selection of music; I don’t have comparable numbers but Grooveshark returned better results on a couple of more obscure searches, where as Last.fm failed or only had 30 seconds of the song. Unlike Seeqpod, another service that allows you to search for and play music uninhibited (and until now my music service of choice), the music on Grooveshark is of a more reliable quality as it’s vetted for sale, although unlike Seeqpod you cant illegally download the track, if that’s how you like getting your music.

The player offers music by artist, album and song title, and is free to use and doesn’t require registration, although registration is required to use Grooveshark services such as playlists and sharing.

San Francisco/Seattle based music service iLike launched a “news feed” for favorite artists this week. Users can now see exactly what their favorite artists are up to - when they go on tour, release new songs or videos, etc, the news is presented to them in the feed.

Users can select their favorite artist via the iLike website or on their social network applications. Or the service decides what you like based on your playing habits on iTunes (they have an iTunes plugin - if you listen to a song ten times, it thinks you like the artist).

The news feed for favorite artists can be viewed via the iTunes plugin, the website, the social network applications, or via a new iPhone app (just go to iLike on an iPhone and log in).

The company continues to dominate the Facebook music scene. Their U2 page on Facebook has 1.9 million fans. Compare that to just 168,000 friends on the MySpace U2 page, and 933,000 on Last.fm. The fact that a previously unreleased U2 song was first heard on iLike didn’t hurt those numbers, either.

In July 2007 iLike had 4.5 million users of its Facebook application. Today they have 14 million. But more than half of their new members today are coming from their iLike.com site and other social networks - OpenSocial gave them access to Bebo, Hi5 and soon MySpace. On their website alone they see 3.5 million worldwide monthly visitors, which isn’t bad considering most users interact with iLike via their iTunes plugin, or on Facebook and other social networks. Last.fm, which was acquired last year for $280 million, has 4.7 million.