Digital Media

Microsoft's MSN is in preliminary talks with MySpace about using the social-networking site's music service, MySpace Music, to help power music offerings on the giant portal.

While sources at both companies cautioned that the talks are still early, Microsoft, which has its own music site that it programs with original and partnered content, execs are interested in goosing it.

That's because MSN Music consistently ranks substantially lower than other big online music properties in terms of traffic, while MySpace Music is always near the top.

Sources said Microsoft execs don't think they can do as good a job as MySpace is doing and don't see the point in striking needed but complex deals with music labels, which the News Corp. property already has.

In an April report by comScore, for example, MySpace Music was No. 2, just behind AOL Music, with 27.4 million unique monthly visitors. MSN Music was No. 6 with just 7.4 million.

Nonetheless, music is an area MSN cannot lag so badly in, given that entertainment is one of the key categories it is focusing on as it preps for a major renovation of the portal.

As BoomTown wrote in mid-July about a wide variety of changes coming to MSN:

MSN, Microsoft's online portal, is also preparing a major redo of what U.S. and, possibly, international consumers will see, as it doubles down on five key content verticals, while cutting back on others.

In a new focus that will start to be apparent in the next month, MSN will heavily add to its News, Sports, Finance, Lifestyle and Entertainment offerings, weaving more data from [its search service] Bing into the mix.

"It's a decision to make it so MSN does less better," said one source close to the situation. "So there will be a focus of attention on a smaller number of categories in which we can be either #1 or #2 in, rather than #4 or #5."

It is not clear exactly what the financial terms would be in any tie-up between MSN and MySpace, which could include licensing of content and other services related to music.

But such a deal is not unusual--MSN's sports site is powered by Fox Sports, which is another News Corp. property.

And such a partnership would also key into concepts that MySpace CEO Owen Van Natta outlined in a recent interview onstage at the Web 2.0 conference.

Key among them was boosting music and entertainment overall and making them the prime focus in the site's efforts at reinvigorating itself, as well as expanding distribution of MySpace.

In fact, MySpace recently bought social music service iLike to expand its distribution all over the Web, for example--including on Facebook, the longtime social-networking rival from which MySpace is now trying mightily to differentiate itself.

In his appearance, Van Natta also unveiled a music video hub, the ability by users to buy music using Apple iTunes, and a set of better analytical tools--called MySpace Music Artist Dashboard--to help artists figure out how to best work with fans.

But MySpace needs more than these, and a link with Microsoft would provide it with a traffic gusher, since MSN's main page remains one of the most trafficked sites on the Web.

If such a distribution partnership were struck, it would also raise the question of what will happen regarding MySpace's negotiations with Google over renewal of their search deal, which expires next summer.

Dissatisfaction over the pricey three-year deal has been expressed by both sides; their mutual grumbling is one of the biggest open secrets in Silicon Valley.

Doing a search deal with Bing is the obvious and only alternative, although few expect any agreement to be as rich as the one MySpace did with Google in 2006 for $900 million.

Interestingly, it was recently reported that both Google and Facebook were bolstering music search and sales offerings, and Google's apparently includes the use of the iLike player.

In other words: this could get really complicated.

Execs at both MySpace and Microsoft I reached out to declined to comment.

(Full disclosure: News Corp. owns Dow Jones, which owns AllThingsD, the site where this article originally appeared.)

Story Copyright (c) 2009 AllThingsD. All rights reserved.

Usually when I get news about Sun Microsystems and Microsoft working together, it is some highly technical enterprise collaboration stemming from their lawsuit settlement a few years back.

On Monday, though, the companies announced something in the consumer arena. Sun will start distributing the MSN toolbar to Internet Explorer users when they download Sun's Java Runtime Environment.

The companies said that Sun's Java runtime is downloaded tens of millions of times per month.

"This agreement with Sun Microsystems is another important milestone in our strategy to secure broad-scale distribution for our search offering, enabling millions more people to experience the benefits of Live Search," Microsoft senior vice president Yusuf Mehdi said in a statement. "With the vast array of Java software-based Web applications that are downloaded every month, this deal will expose Live Search to millions more Internet users and drive increased volume for our search advertisers."

On its own, the news won't change the shape of the Internet. However, it does represent some shifting allegiances for Sun, which had been allied with Microsoft's rivals.

Until just recently, those downloading the Google Pack of desktop software received Sun's StarOffice, though that has apparently reached an end. As part of a 2005 deal, Sun was also to distribute Google's toolbar. Sun also has distributed Yahoo's toolbar.

Post updated 11:45 AM PST

Beet.TV has the scoop on Nielsen Online's tracking of video streams for September 2008. Yahoo Video streams surged 56 percent and unique users grew 35 percent month over month.

The month of September was also good for Google's YouTube, which had 12 percent growth in streams. Fox Interactive, MSN/Windows Live and Nickelodeon all had negative growth from August to September 2008, according to Nielsen Online.

It's unclear why Yahoo Video saw such a dramatic increase compared to other sites in September. CNET News has call into the company and Nielsen to check this out.

Update: A Yahoo spokesperson attributed the growth to contextual placement of the videos and traffic due to major news events. Yahoo had record traffic for Yahoo Finance and Yahoo News in September 2008.

It would seem that sites with video related to the economy and politics would show some growth in September. Given the frenzied October financial meltdown and Obama-McCain face-off, October should be a strong month for growth.

See also: Jimmy Pitaro, head of entertainment and sports at Yahoo, discusses his division's video strategy with Beet.TV.

U.S. paid search rose 26.9 percent year over year in the third quarter, despite weakness in the economy and markets, according to a report released Tuesday by SearchIgnite.

But while paid search increased overall by double digits during the quarter, retail advertisers increased their search spending by a modest 1.5 percent.

And more surprisingly, retailers significantly scaled back their paid search advertising for the month of September, resulting in a 10 percent drop in year-over-year retail advertising spending compared with September 2007. The decline occurred despite a slight increase in click-through conversion rates and the average value of orders for the months of August and September.

In the coming days, however, a more telling sign of retailer sentiment and their outlook for the fourth quarter will become evident, given that this sector usually ramps up its paid search advertising beginning in mid-October through mid-December, noted Roger Barnette, SearchIgnite president.

"Retail had issues throughout the year, but it hasn't affected all sectors," Barnette said, noting that travel, media, and the non-mortgage area of financial services have remained strong.

And heading into the fourth quarter, paid search advertising overall is exhibiting signs of typical growth rates, Barnette noted. During last year's fourth quarter, advertisers increased the amount they spent on search advertising by 37.3 percent.

During this year's third quarter, Google increased its lead in search advertising, capturing 72 percent of all U.S. search advertising dollars, according to the SearchIgnite report. And while Yahoo lost a small portion of its market share in the third quarter, coming in just above 20 percent, it has increased its market share during the first nine months of the year over last year. MSN, meanwhile, remains relatively flat with approximately 0.8 percent of the market.

The masses have spoken.

And Wal-Mart Stores, the nation's largest retailing chain, retreated from a misdirected and unfair policy. Last month, the company informed customers who bought its DRM-wrapped music that it would no longer issue keys to unlock songs. That meant music buyers would no longer be able to move their libraries to new computers or players. On Thursday, the company reversed that decision and said it would continue to issue keys for "the present time," according to Ravi Jariwala, a Walmart.com spokesman.

OK, let's tally these up. By my count this makes the third behemoth company this year to bend its digital rights management strategies to your will. Yes, you the Internet user, consumer, music fan.

I'm not pandering. That's what happened. The pattern was the same in each case. MSN Music was the first to announce that it planned to stop supporting DRM. Then came Yahoo Music, followed by Wal-Mart. Each announced a plan to kill support. Each was criticized. Each caved in.

Customers pointed out the obvious: There was no expiration date on the music they bought.

If nothing else, the lesson here to you--techies and digital music fans--should be that when you go to the barricades, you can make something happen. When you combine voices, the sound is loud enough to force conglomerates to bend their ears. To their credit, Microsoft, Yahoo, and Wal-Mart listened.

Of course, this isn't the end. Microsoft has committed to supporting the DRM keys for three years. What happens in 2011? And when I asked Jariwala how long does "for the present time" mean, he e-mailed this:

"(Walmart.com) will continue to evaluate options and no decisions have been made at this point. In the meantime, we'll continue to offer MP3 downloads through our online music store and will assist with DRM issues for protected Windows Media Audio (WMA) files purchased from Walmart.com."

It's generally recognized as a good thing that Walmart.com switched to MP3s. But as far as the DRM-wrapped music it once sold, the company could still pull the plug on support whenever it wishes.

And what about the services which continue to sell DRM-laden downloads, such as iTunes? Who knows what the future brings, but if Apple ever considers turning off its DRM support, it should make preparations to take care of its customers.

If not, well, then the people will clear their throats once again and make themselves heard.

It happened to Microsoft and Yahoo. Could it happen to Apple?

The limitations of antipiracy software were dramatically illustrated last week when Yahoo Music announced the company would stop issuing authorization keys for the software that prevents its songs from being copied.

Microsoft's now defunct MSN Music service made a similar announcement last spring. Some CNET News readers have asked whether the same thing could happen at iTunes. The answer to that question is yes, it most certainly could.

If Apple ever stopped issuing keys for its FairPlay digital rights management then, just like at Yahoo and MSN, iTunes users would be prevented from moving their music to different machines or devices. That would affect most of the 5 billion songs the company has sold. (Following much public criticism, Microsoft said it would continue issuing keys for another three years and Yahoo is offering refunds.)

To be sure, the likelihood of Apple shutting off DRM keys anytime in the foreseeable future seems remote at best. Apple is the Internet's largest music retailer and may be the largest music retailer overall. The company is riding a wave of excitement over the new iPhone 3G, which besides being a phone and Internet-enabled device, is an excellent music player. Apple appears to be on track to dominate retail music sales for a long time to come.

Still, things do change. Who can say what will happen at Apple in 5 or 10 years? That's a long time from now. But the truth is, DRM's threat to iTunes users' music libraries is real.

If, for some reason, Apple stopped issuing new DRM keys, people's music would get stuck. Check out iTunes' terms of service. The company says that in such a scenario, customers could not hold it responsible: "In the event that Apple changes any part of the Service or discontinues the Service, which Apple may do at its election, you acknowledge that you may no longer be able to use products to the same extent...and that Apple shall have no liability to you."

What the Yahoo and MSN situations show is that DRM-wrapped music is never truly controlled by anyone other than whoever holds the encryption key. Whether it's FairPlay or Windows Media DRM or some other format, consumers are at their mercy when it comes to unlocking their music.

This means that music libraries can be threatened when computers go kaput. (Yes, the workaround is to burn the music to CDs, but then some sound quality is lost.)

While it may seem inconceivable, it's worth looking at what would happen if Apple stopped issuing keys. How would the company compensate customers for 1 billion lost songs?

MSN Music announced in April that it would no longer support the DRM keys on its music. Customers could still play and hear their songs but would be prevented from transferring them to other devices. Two months later, following public condemnation, Microsoft said it would continue to issue DRM keys for three more years.

On Friday, Yahoo Music said it would begin offering refunds to customers who purchased songs from Yahoo Music Unlimited. For people who would rather have DRM-free copies of their songs, Yahoo is also looking into whether it can provide unprotected MP3s.

The problem with Microsoft's approach is that it is only a short-term solution. In three years time, Microsoft could once again opt to end DRM support. And if Apple followed Yahoo's refund policy, it could prove to be mighty expensive.

Apple conceivably could strip DRM from its songs. From a technological standpoint, it wouldn't be hard to do. If Apple ever stopped issuing keys, the company could, in theory, work out a deal with the labels that would allow it to remove FairPlay. It's unclear whether Microsoft or Yahoo tried to negotiate similar agreements with the labels.

Software packages such as PlayFair and QTFairUse already do this.

The real hurdle would likely be the labels. Right now, EMI is the only one of the four largest recording companies selling unprotected song files on iTunes. Apple's agreements with the other three labels require it to offer copy-protected music.

This brings us to a question that has long been asked: At a time when more and more of Apple's competitors are offering DRM-free music, why does Apple continue to sell songs with antipiracy protections?

Who's to blame?
Apple's Steve Jobs says he wants to sell unprotected music. The recording labels have said Apple is at fault. With everyone pointing fingers at each other, the only thing that's clear is DRM has been exposed.

"It is the consumers' responsibility to protect their investments. You have a volatile store sitting on a hard drive."

--Guy Tennant, COO, Entriq

Yahoo and MSN have helped show that consumers of DRM-wrapped music play their songs only with permission of anyone trading in copy protections, and that includes Apple.

Guy Tennant, chief operating officer of Entriq, a company that helps online stores manage publishing, packaging, and protection of digital products--and this includes implementing DRM--says limitations with copy protections shouldn't come as a surprise. "You got what you paid for," Tennant said. "It is the consumers' responsibility to protect their investments. You have a volatile store sitting on a hard drive."

Tennant says he doesn't want to sound unsympathetic but reminds digital-music buyers that CD owners don't demand a refund from stores when they lose their discs. As for backing up songs to a CD, people should just accept the loss of quality because the only other alternative is to lose the music entirely, he said.

"The challenge for DRM technology providers is to create technology that is easy to use and fits consumers' perception of fair use," he said.

Yahoo Music earned kudos from one of the Web's most outspoken advocacy groups on Monday.

The music service, which has opted to get out of music retail and subscription services, is offering to reimburse customers who bought music from Yahoo Music Unlimited. The decision follows the company's controversial announcement last week that it will no longer authorize keys that allow users to transfer music to new PCs or devices starting October 1.

Last week, the Electronic Frontier Foundation called on Yahoo to offer customers refunds. Now that the company has, EFF is happy. "EFF applauds Yahoo's decision," said Corynne McSherry, an attorney for the group.

And surprisingly, EFF doesn't necessarily want Microsoft to also offer refunds. After Microsoft shuttered MSN Music, the company announced last spring that it would stop issuing DRM keys. After being criticized, Microsoft decided to continue supporting its music for three more years. McSherry said that Microsoft's decision ensures that customers get what they paid for. That's all EFF wanted.

"In both cases, each of the companies has been forced to acknowledge they must do right by their customers," McSherry said. "I do hope that any other vendor (selling DRM-protected media), learns a lesson. They all must live up to the conditions that they set when they sold their music."

McSherry pointed out the differences in Yahoo's and Microsoft's approaches. Yahoo has decided to "tear off the band-aid." Yahoo's approach allows the company "to break free of DRM much faster," McSherry said.

Yahoo Music is offering refunds to anyone who bought songs from the service. Is it time for MSN Music follow Yahoo's lead?

Yahoo announced last week that it would no longer issue authorization keys for the digital rights management, or DRM, software on its songs. This meant that anyone who bought songs from the service would still be able to hear their songs through its service but would be unable to move them to other devices or computers.

This did not play well with Web users. Now Yahoo Music plans to issue refunds and is trying to go one step further. If a customer would prefer music over a refund, Yahoo is looking for a way to give the customer copies of the purchased songs in the DRM-free MP3 format, according to a Yahoo representative.

Yahoo Music is transferring customers of Yahoo Music Unlimited to RealNetworks' Rhapsody service. These are both subscription music services, so Yahoo users who choose to make the move are unaffected. But those who purchased songs would be out of luck after September 30.

The question now is, has Yahoo Music raised the bar? Is it time for Microsoft to pony up with a refund for MSN users?

MSN Music shut down and announced that it would stop issuing DRM keys, only to change its mind last month and say it would continue issuing keys for another three years. As noted by Michael Spiegelman, Yahoo's senior director of music, Microsoft just delayed the withdrawing of support for songs.

A Microsoft representative could not be immediately reached.

The Electronic Frontier Foundation, an advocacy group for Internet users, has called on both Yahoo and MSN to issue refunds.

Yahoo Music is telling customers that it won't allow users who bought songs from the service to transfer them to new devices or PCs after September 30.

The announcement on Thursday has stunned the Electronic Frontier Foundation, a watchdog group for Internet users. Surely, Yahoo should have learned something from the MSN debacle. Just a month ago, Microsoft reversed a decision to stop releasing authorization keys for the copy protections it placed on songs, and will issue keys for three more years.

"Some people think they can use music wrapped in digital rights management just like they do a CD," Corynne McSherry, an attorney with EFF, told CNET News. "This should teach everyone that you can't."

To those opposed to DRM, this is but the latest example of how buying copy-protected music means that a label or music service can come in and snatch it away. Without the DRM keys, an owner is helpless to transfer songs to new devices. An owner can burn songs to a CD, as Yahoo has been telling customers to do for six months, but they then risk losing some sound quality when they rerip the music.

In explaining how Yahoo came to its decision, Michael Spiegelman, Yahoo's senior director of music, argued many of the same points that Microsoft made.

•  Microsoft said consumers would benefit by being moved to a new, superior service: Zune's Marketplace. Yahoo is suggesting customers move to RealNetworks' Rhapsody.

•  Microsoft said that the issue affects a small number of people. Spiegelman used the term "small percentage." (Neither company disclosed exactly how many people would be affected.)

•  Microsoft said that copy-protection schemes were forced down its throat by the major recording companies. Yahoo's Spiegelman says the company has realized "the time for DRM-protected tracks has passed."

But here's what is different about Yahoo's decision. While Microsoft chose to delay the eventual withdrawing of support, Yahoo says it decided to deal with it sooner rather than later.

"We definitely tracked the (MSN) situation closely," Spiegelman said. "We found (the decision to continue supporting DRM keys for three more years) just prolongs the pain. It keeps the DRM question going for years. We want to help people make the transition now."

Fine, says EFF. Yahoo has admitted that it made a mistake with DRM. But why is the company making customers pay for its error in judgment?

"This isn't just about withdrawing support," McSherry said. "It's about not compensating customers. This is pretty outrageous."

She called on Yahoo to apologize to customers and either replace their music with open MP3s or issue refunds.