Crave

Comes With Music customers will have total access to the music of Alicia Keys as well as every other Sony BMG artist free for a full year.

(Credit: Sonybmg.com)

The concept behind Nokia's new music service "Comes with Music" is starting to catch on with the major music labels.

Sony BMG, one of the four top recording companies, announced Tuesday that it has partnered with Nokia to make its music catalog available on select Nokia devices. After buying one of the devices, users will get unlimited free access to the music of Alicia Keys, the Foo Fighters or any Sony BMG artist for a full year.

During the 12 months of the offer, users will be able to transfer their Comes With Music library to a PC as well as to a new Nokia handheld, but they won't be able to transfer it to iPods or other non-compatible devices. At the end of the year, Nokia users will have the choice of acquiring new music by either purchasing downloads from the Nokia Music store or joining its subscription service.

Nokia is expected to launch the Comes With Music service in the second half of the year.

What is groundbreaking about these deals--Universal Music Group was first among the labels to join the service--is that Nokia users can download any song from Sony BMG and keep the music for the rest of their lives. There is no ceiling on the number of songs and the music doesn't disappear at the end of the year.

This is believed to be the labels' deepest foray into free music, and is reflective of the industry's attempt to find new business models that can compete with piracy, shrinking CD sales, and iTunes.

"We think this business model will encourage users to sample a wide range of material, expand their musical tastes, and listen to more music than ever before," said Thomas Hesse, Sony BMG's President of Global Digital Business.

Sources told CNET News.com last month that Apple has discussed a similar offer with the music labels, adding that the concept behind Comes With Music is not exclusive to Nokia.

Should the concept of supplying year-long all-you-can-eat music catch on, other device makers wishing to gain access to music may be forced to adopt similar services.

SpiralFrog continues to dodge bullets.

The troubled ad-supported music service that has needed loans to keep operating was supposed to pay creditors $7 million by April 19. At least from the outside the situation looked bad because it was only three months ago that SpiralFrog needed a $2 million loan. Where would a start-up that's only been in business for six months get that kind of money?

Turns out, SpiralFrog's managers renegotiated the loan terms and the company now has a year to repay, according to a company spokeswoman.

So SpiralFrog keeps hopping, but for how much longer?

At the end of the month, privately held SpiralFrog is due to report year-end earnings for 2007 (the company reports like a public company as part of an agreement with investors). That report could hold important clues about the company's prospects.

Early indications are that SpiralFrog, which attracted lots of media attention two years ago when it announced plans to offer free legal music, has met with mixed results.

The good news is the New York-based company topped 1 million unique visitors in January and music-industry sources say it has made several hires in recent weeks.

But the service still wrestles with the same problem it has tried to remedy for two years: a highly limited song selection.

Once trumpeted as a potential iTunes killer, SpiralFrog's music library is dwarfed by iTunes. After two years of trying to sell the four largest music companies on its business model, SpiralFrog executives have managed to sign one: Universal Music Group. It's extremely hard for a music service to compete against Apple's music store, but it's nearly inconceivable to do it without songs from all top four labels.

Meanwhile, social networks, such as Imeem and Last.fm, which stream music to users' PCs, can boast licensing deals with the majors. And MySpace and Facebook are also in talks with the labels about offering music.

Numerous sources close the record labels said SpiralFrog's problem mostly comes down to its business model. Sony BMG Music Entertainment and Warner Music Group don't have much faith, the sources said. EMI Music Group's publishing unit already has an agreement with the service and the label could eventually sign, according to one source.

Another deal breaker for the labels has been the turmoil at the company. An executive shuffle in Dec. 2006 and SpiralFrog's money troubles has given the big music firms pause, said the sources.

Those financial worries may continue to undermine the company.

SpiralFrog needed to pay Universal Music $3.3 million before it ever sold a single song. Even if managers convince another major to sign on, where are they going to get the money to pay the fees?

In the third quarter, SpiralFrog burned through $3.4 million while reporting revenue of $20,400. But the free-music service, which launched in September, had only been open for a three weeks during that period. Starting with the fourth-quarter report, we're going to start seeing how scrappy SpiralFrog really is.

At first blush, Qtrax seemed like a good idea.

Executives there wooed reporters by promising to corral illegal file sharing. They built an interface on top of the Gnutella network where millions of songs are pirated. They pledged to offer users a legal way to download and share music.

Qtrax managers said they had convinced the big record labels that it could turn file sharing into a cash cow for them. They said all four of the most powerful labels were on board.

But on Monday, Qtrax was more than 12 hours late launching its music service. A day earlier, the big record companies made news by contradicting Qtrax. They said the company was not authorized to sell their music.

What was once an eagerly awaited debut is turning into a fiasco for the New York-based start-up, which has tried for more than a year to get off the ground.

The issues with Qtrax illustrate two things. First, the labels have clearly signaled that they are willing to give ad-supported music a try--just not with downloads. Secondly, Qtrax executives should know better than to announce deals when they don't have ink. Qtrax CEO Allan Klepfisz told CNET News.com on Sunday that the company had agreements, but acknowledged that they just weren't signed.

But everybody knows that without signed contracts, there is no deal.

Perhaps actress Kelly Preston said it best in the movie Jerry McGuire: "It's not 'Trust my handshake.' It's make the sale. Get it signed. There shouldn't be confusion about that."

As Qtrax struggles with licensing deals, the big record companies are partnering with a growing number of ad-supported sites that stream songs to listeners but don't allow the music to be downloaded to computers or digital music players.

Services, such as Imeem and Last.fm, which only stream songs, offer music from all four major labels, Universal Music Group, Warner Music Group, The EMI Group, and Sony BMG Music Entertainment.

Meanwhile, SpiralFrog, one of the best-known services and one that enables people to download to a PC and a handful of portable devices (but not the iPod), has been toiling in the sector for nearly two years and has managed to land a music deal with only one top label: Universal.

But how did Qtrax get mired in this mix up? Is the company a victim of a misunderstanding? Were executives overly confident when boasting to reporters that they had signed the top labels?

After interviews with managers at Qtrax and the record labels, it appears that a bit of both occurred.

Previously, Qtrax had succeeded in striking agreements with at least two of the record companies as the start-up was preparing to ramp up. But sources with knowledge of the deals said those deals have expired.

Qtrax is close to getting signatures from Universal and EMI, said the source but, "Qtrax spoke too soon."

How this public relations nightmare affects Qtrax's prospects for the future is unclear. But don't believe the old adage that all publicity is good publicity. As it stands, the debacle undermines Qtrax's competence, if not its integrity.

UPDATE: 7:12 A.M. (1-28-08): Qtrax continues to delay the launch of its much awaited legal file-sharing site as more record labels confirm that the startup doesn't have permission to sell their music.

For weeks, Qtrax, an ad-supported P2P site, had promised to offer free and legal music downloads from all four of the major record labels when it opened for business.

But despite earlier reports, Qtrax's Web site will apparently not feature legal downloads from any of the majors when it debuts. On the eve of the site's launch, Warner Music Group and Universal Music Group said that Qtrax was not authorized to offer their music.

Both companies said they continue to negotiate with Qtrax, but emphasized that they don't have a done deal. A spokesman from Sony BMG echoed the other two companies by confirming on Monday morning that the label has not signed on to Qtrax either.

The Los Angeles Times reported on Sunday that New York-based Qtrax is also without a final agreement with the EMI Group. The blog, Silicon Alley Insider, was first to report on Qtrax's troubles.

Meanwhile, Qtrax has missed it's launch time of midnight Monday morning ET. More than eight hours later, visitors were still not allowed to download music. Robin Kent, a Qtrax marketing executive said that it might be another 24 hours before the company can enable downloads.

Qtrax CEO Allan Klepfisz acknowledged in an interview with CNET News.com late Sunday evening that his company may not possess agreements "written in stone," but that it doesn't mean Qtrax is without the labels' consent to feature their music.

"This is a tempest in a tea cup," Klepfisz said from the Midem music conference in Cannes, France. "It's true, some of the deals may not be locked in ink, but it's also true that we had understandings. In some cases, we had endorsements."

Klepfisz said it was likely the Qtrax Web site would debut featuring music from all four labels despite the public comments by UMG and Warner. Is he worried about a lawsuit?

"The answer is nobody has threatened us with a thing," Klepfisz said. "We plan to release music the way we said we were."

Qtrax's business model is based on offering people an attractive and legal file-sharing site.

The company's music offering sits on top of the Gnutella file-sharing network. Once a user downloads Qtrax's software client, they can look for songs with the help of the company's finger-printing technology.

Qtrax guarantees to protect customers from spyware or viruses that plague illegal sites. The way Qtrax makes money is by placing ads on its Web pages. The company then splits the ad revenue with the labels.

Recently, the labels have embraced ad-supported models. What they don't seem keen on are ad-supported sites that offer downloads.

For example, services such as Imeem and Last.fm, which stream music to listeners but don't allow them to download it to a computer or portable device, offer songs from all four top labels.

SpiralFrog, one of the best known services and one that enables people to download to a PC and some portable devices, has been toiling in the sector for nearly two years and has only managed to land one of the biggie labels: Universal Music Group.

Musicians aren't merchants.

We certainly learned that through Radiohead and Trent Reznor's separate experiments with choose-your-price album promotions.

Trent Reznor of Nine Inch Nails

(Credit: Rob Sheridan)

In October, Reznor, the leader of the band Nine Inch Nails, and Radiohead attempted to promote and distribute albums online without the help of a major record label. Both offered fans the opportunity to obtain the music for free. Both saw some success.

But they also illustrated that the music business is probably better left in the hands of businessmen. Musicians are not the new labels. Artists need someone to provide financial support and business acumen. If we end up ridding the world of labels, we'll only have to re-create them--in some other, probably more nimble form.

Last week, I interviewed Reznor about the online promotion of rapper Saul William's album The Inevitable Rise and Liberation of NiggyTardust. In that interview, Reznor said he was disappointed that only 18 percent of the more than 150,000 people who downloaded the album paid for it. He and Williams offered two options: pay nothing or obtain a higher-quality audio version for $5.

By backing Williams with his money, name, and know-how, Reznor essentially thrust himself into the role of a music label. That is, a music label with a lot to learn. The first lesson was that you don't always back a winner. A music company's fortunes can often rest on its ability to discover superstars. Profits generated by a few marquee acts have always kept the companies going while all the other performers break even or lose money.

EMI said this week that only 5 percent of its acts are profitable. This kind of prospecting requires a huge investment.

Reznor said he didn't get involved with Williams to profit, but acknowledged that he spent too much making the album and said he hasn't yet recouped his money. A record company can afford to make bad bets once in a while, said Chris Castle, a music industry insider who has worked as a vice president for both Sony Music and A&M Records. Musicians, even successful ones like Reznor, probably can't.

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Prince can't push this mother around.

The pop star wanted YouTube to remove a clip of an infant boy dancing to his 1984 hit song "Let's Go Crazy." When the clip got scrubbed, the baby's mother cried foul and filed suit asking for damages. The woman's lawyers at the Electronic Frontier Foundation (EFF) say the dancing-baby clip is the poster child for fair use.

Corynne McSherry, the EFF attorney representing the baby's mother, Stephanie Lenz, said the music on the clip is barely audible and that Lenz, from rural Pennsylvannia, posted the video for noncommercial uses. Copyright owners are often too quick on the trigger when it comes to sending takedown notices to YouTube and other Web sites, according to McSherry.

The Digital Millennium Copyright Act enables owners of intellectual property to demand that unauthorized copies of their work be removed from Web sites. But Congress also built in safeguards to prevent copyright owners from making misrepresentations.

"We've seen a lot of abuse of the takedown procedures," McSherry said. "It's very easy to get material taken down, and unfortunately folks aren't careful enough when issuing notices. This interferes with free-speech rights. The Internet can't continue to grow or be a robust forum if users can't share views or larger political commentary without being worried that every little piece of content is going to be removed."

There is also something unique about this case. Universal Music Group is the defendant because it represents some of Prince's publishing rights (his current music label is Sony BMG). A year ago, Universal signed a licensing deal with YouTube that allows users to include the label's music in videos. Under the terms of the agreement, YouTube agreed to remove material from any Universal artist who declines to participate.

According to sources knowledgeable with the agreement, only one artist represented by Universal has elected to opt out of the YouTube deal: Prince.

A representative of Universal declined to comment.

The iconic musician sometimes calls up Universal when he spots unauthorized uses of his work and asks them to send takedown notices, the sources said. The author of such hits as "Purple Rain" and "Little Red Corvette," Prince has hired a company called Web Sheriff to patrol the Web looking for unauthorized copies of his work and then try to get them taken down. The company said it plans to spearhead a legal challenge to YouTube and other Web sites on behalf of Prince and the 1970s disco band, the Village People.

John Giacobbi, Web Sheriff's president, said by phone Tuesday that his company had nothing to do with the Lenz baby clip and declined to comment further.

The lawsuit appears to have a ways to go before the issue is decided. Universal has filed a motion of dismiss and EFF is scheduled to issue their reply in the next few weeks.

Less than a month after publicly calling executives at his music label unprintable names, rocker Trent Reznor has signaled that his days of working for a record company are over.

The only official member of the band Nine Inch Nails, Reznor announced Monday that the group is now "free of any recording contract with any label." Representatives from Reznor's music label, Universal Music Group, were unavailable for comment.

Reznor provided few details in a note on the band's Web site about how the group plans to proceed, but his announcement raised hopes among fans that he will follow the lead of British band Radiohead, which last week announced it would handle sales and distribution for its upcoming album, In Rainbows without the backing of a label.

Two well-known bands taking to the Internet to sell their own albums is not yet a trend, but it certainly must be a cause for concern in the halls of the four major music companies. The question raised by the defections is whether well-established performers need big music conglomerates in the digital age.

It costs relatively little to distribute songs over the Web. So why can't bands do it themselves from their own Web sites?

Groups like Radiohead and Nine Inch Nails already have established followings. So promoting their music may require little more than posting an announcement online. (That is all Radiohead did to trigger enormous demand for In Rainbows.)

Who needs middlemen?

Still, the groups are breaking new ground and nobody knows whether they can pull it off. Radiohead is offering digital downloads for the upcoming album, which goes on sale Wednesday, and fans are requested to pay whatever they want for the music. Is this a smart business move? Time will tell, but a more important question may be whether musicians are willing to become merchants.

One thing is for sure: the numbers of performers dissatisfied with the current music-industry business model is not abating.

Bands like Cheap Trick and the Allman Brothers have sued their record company, Sony BMG, because they say they aren't getting their fair share of money from digital downloads. Eminem's music publishing company has sued Apple because it wants to cut its own publishing deals with the online store, and not be represented by a record label during negotiations.

At a performance in Australia last month, Reznor expressed frustration with the high prices that labels charge for CDs.

"Steal it," Reznor told the audience. "Steal away. Steal and steal, and steal some more and give it to all your friends."

We'll see if Reznor continues to feel the same when the buck (hopefully there'll be more than one) stops with him.

Below is a clip from last month's performance in Australia. It contains profanity. Consider yourself warned.

Free-music site SpiralFrog made its long-awaited debut on Sunday evening, defying critics who said the struggling company would never get off the ground.

The ad-supported music store opened with more than 770,000 songs and 3,500 music videos from numerous independent labels and Universal Music Group, the largest of the top four record companies.

When the company announced plans in August 2006 to offer ad-supported music free of charge to users media pundits called it an iTunes killer. But in December, New York-based SpiralFrog suffered an executive shakeup, burned through most of its cash and has since acknowledged selling secured notes, which are essentially loans, to fund operations.

The company is banking on revenues generated from ad sales to help cure its financial ills, said founder Joe Mohen. The idea behind the company was to offer a legal alternative to illegal file sharing.

But can SpiralFrog overcome a handicapped music offering?

SpiralFrog's music library was expected by critics to be hamstrung by a relatively small music library. A quick run through of the site on Sunday showed that SpiralFrog offered eight of the top 10 best-selling songs of the week, according to Billboard.

Universal owns 25 percent of the global music market, so SpiralFrog is not without some firepower behind it.

Songs can be downloaded to any portable device that is compatible with Windows digital rights management. Each user is allowed to transfer their music to two different devices.

Users must renew their monthly memberships every 30 days to continue hearing SpiralFrog's music files, which is typical for subscriber services like Yahoo or Napster.