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Some people might be embarrassed if their friends found an old copy of Mr. Big's "To be with you" or Paula Abdul's "Cold hearted (snake)" stashed away in their CD collection. But not EMI. They own those songs, and they want the world to know it.

The music giant is suing social-networking site Hi5, video advertising start-up VideoEgg, and 10 unnamed defendants for allegedly infringing on the copyrights of those and hundreds of other pop throwbacks.

The lawsuit alleges that Hi5 users have uploaded and disseminated hundreds of music videos the company owns rights to. VideoEgg is on the hook because it's a former partner of Hi5, and those allegedly infringing videos were uploaded to its servers. (On May 31, VideoEgg stopped hosting videos uploaded by the public and refocused efforts on its ad network, prompting rumors that the company was on its way out.) The lawsuit doesn't say much of anything about who the 10 John Does are.

The companies had attempted to work out some kind of deal for more than a year, a source told TechCrunch, but those efforts eventually failed.

The Pioneer Inno

(Credit: Pioneer)

EMI Group is the latest major music label to reach a settlement with XM Satellite Radio over the Pioneer Inno device, the companies announced Tuesday.

EMI, one of several music labels that filed a copyright infringement lawsuit against XM in May 2006, is withdrawing from the complaint. Terms of the settlement were not disclosed.

The initial lawsuit stems from XM's Pioneer Inno, which has the capability to record and store music delivered over satellite radio. EMI, along with other major music labels, had contended that the device could violate their copyrights.

With the settlement, EMI is joining Universal Music Group and Warner Music Group, which in December also reached a settlement with XM. Last February, Sony BMG and XM also settled.

Corey Ondrejka

Strugging record label EMI Group continues to turn to the technology sector for leadership as it attempts to navigate the Digital Age. The music label hired Cory Ondrejka, one of the founders of Linden Lab's virtual world, Second Life.

Ondrejka was named senior vice president of digital strategy, EMI said in a statement. The hiring comes two months after EMI hired Douglas Merrill, Google's former chief information officer.

Ondrejka left Linden Labs in December. Ondrejka helped design "big parts" of Second Life.

Massively.com published an internal e-mail from Philip Rossdale, CEO of Linden Lab, saying he and Ondrejka couldn't agree on how the company should be run and that it was Rossdale's decision that Ondrejka should leave.

Ondrejka on Monday said he left when it was time to go in "a different direction." In the half year since his departure from the company, he has been teaching at the University of Southern California. In talks with Merrill about music, the possibility of joining him sounded attractive.

What Ondrejka says he can bring to the music industry is an understanding of the "problems that intersect at technology, communications, social networking, and media."

But don't look for EMI to get into the virtual-world business. Ondrejka said he joined EMI for a totally different experience.

"I spent seven years at Second Life," Ondrejka said. "I designed part of the site, hired a lot of smart people who are still there...I don't want to go do that again. A big part of what makes (the EMI position) so exciting is that it presents a completely new set of challenges."

(Credit: Qtrax.com)

Qtrax, the free music site with the questionable history of signing labels, has cut a licensing agreement with EMI Music, the company announced Tuesday.

"EMI's music will be available free to registered Qtrax users for unlimited streaming or downloading to a PC," the companies said in a statement. "(Users) can also load downloaded tracks on up to three portable devices and play them while their membership remains active."

Here's the rub: users must sync their portable device every two months so the number of plays can be counted so that artists are accurately compensated. New York-based Qtrax offers links to online retailers for users who decide on buying the songs.

Qtrax is an ad-supported music and legal P2P site that is best known for an embarrassing episode last January when all four of the major recording companies denied Qtrax's assertion that it had cut deals with them. Since then, the company has been chugging along.

Last month, Qtrax signed a licensing agreement with Universal Music Group, the largest of the four biggest music labels.

Once Qtrax signs the two remaining majors, Warner Music Group and Sony BMG, and has the licenses it needs, executives have said it will offer more than 25 million songs. The company has already signed agreements with the publishing units of the four top labels.

What's right about the service is that it's free. What's wrong is that users can't burn music to disc. However, signing more major labels is a step in the right direction for the company.

French singer Yelle is helping to usher out era of disc promos

(Credit: EMI Music)

Sweet faced and playful, French electro-pop star Yelle seems an unlikely figure to stick a dagger into the heart of a much-loved but quickly disappearing staple of the music industry.

She is unwittingly helping The EMI Group, one of the four largest music companies, to push CDs further into the shadows. Already a star in her own country and a growing nightclub favorite in the U.S., Yelle was being promoted until recently in this country exclusively through digital means.

For decades, music labels trying to break in an act pressed thousands of vinyl records or CDs to distribute to disc jockeys, record stores, journalists, and fans. Those types of promotions have grown too expensive in an era of shrinking music sales, says Jeff Rougvie, general manager of EMI's Caroline Records, who is leading Yelle's U.S. campaign.

"We're definitely spending less than on a traditional campaign," Rougvie said. "It doesn't make sense when you're going out the door to spend a lot of money putting out a physical product and taking in costs before you know what (the demand is)."

For an industry that has been decimated by digital technology, this is an example of how at least one of the four largest music labels is putting it to work.

Caroline Records specializes in introducing international music stars to U.S. audiences. Naturally, this means executives are often less sure of whether a foreign performer can find a niche audience here. Spending big on untested and unknown acts doesn't make sense. As part of the digital-only promotion, EMI didn't seek radio airplay for Yelle's music and didn't buy banner or print ads in traditional music magazines like Rolling Stone or Blender.

Instead, executives took to MySpace, music widgets, and powerful music blogs like Pitchfork. The label started digital and stayed digital until it reached a critical mass. On April 1, EMI finally released a CD version of Yelle's album, Pop Up.

The movement to phase out discs as promotional devices has been around for some time. Last year, EMI drastically scaled back the numbers of CDs it sent out as promos. Just a few years ago, the label may have sent out CDs as complete albums. Now it distributes secure online access where retailers or reviewers can hear songs.

Beyond the cost savings that digital music offers, Rougvie says there is growing need for an act to obtain a "groundswell of digital support" from music blogs, download stores, and MySpace to prove to a label that it can attract fans and is worthy of a larger investment. For that reason, focusing on digital at the beginning of a promotion makes sense.

EMI says it has already seen positive results.

Last year, the label brought Utada Hikaru, Japan's top recording artist, to the United States. EMI helped the singer find an audience in the U.S. without pressing any CDs initially. But the U.S. digital-only campaign was at best an effort to put otherwise hard-to-find product in front of her U.S. fans. Before digital music, those fans might wait months before an expensive import CD hit our shores.

Digital allows EMI to get product to niche audiences affordably as well as generate incremental income for the company. Hikaru would later go on to sell 7.2 million downloads worldwide.

Naturally, EMI is trying it again.

The label couldn't have asked for a better test case than Yelle. The 25-year-old from St. Brieuc, France, told CNET News.com on Wednesday that she grew up with the Internet and fully understands its power to promote and distribute music.

Yelle, pronounced Yeah-elle, was discovered by EMI's unit in France one week after she posted "Short Dick Cuizi," a song that took swipes at a member of a rival band. She renamed the song "Je veux te voir" and then released Pop Up, which features three songs, "Je veux te voir," "Parle a ma main," and "A cause des garcons" attracting big audiences at YouTube.

A version of "A cause des garcons" has been viewed 3.5 million times since August. Her songs have also been heard on such TV shows as "The Hills" and "Entourage."

While Yelle is a fan of digital music and technology, she says there is still a place for plastic.

"I don't know when my first EP on vinyl will come out," said Yelle, whose real name is Julie Budet. "I don't know whether it will come out. I think it's a bonus if it does. It's a plus. I think now you can download music, buy CDs, and that's what people really want. But I would be really proud if my album will be out in vinyl."

Apple's iTunes helped digital music go mainstream

(Credit: Apple.com)

Some of you out there can pat yourselves on the back. You've been shouting for years on Web sites, message boards, and blogs that the music industry would one day bow to technology.

That day has most certainly arrived.

Take a second to gaze out over the music landscape. Technology reigns supreme. Not only have the four largest record companies begun killing off digital rights management and adopting unprotected MP3s, but this week they sidled up to file sharing like never before. There isn't any question that the labels have raised a white flag after being overwhelmed by the digital age and the desire of fans to share songs.

Consider that this week the EMI Group hired Douglas Merrill, Google's former Chief of Information, to run the label's digital unit. He is a self-described geek and former file sharer. He has no previous music-biz experience. "There's a set of data that shows that file sharing is actually good for artists," Merrill told me on Wednesday during a phone interview.

A year ago, you would have never heard a music exec utter such a thing.

On Thursday, MySpace Music was announced. This is the music service that the big record companies started with News Corp. to allow fans to buy downloads, listen to streaming music, and yes, by God, share music. MySpace users won't be sharing files, but they will be passing music to one another a la social networking.

And which retailer is sovereign over music sales? I'll give you a hint. It's not Tower Records or Sam Goody (both defunct). It's not Target, Amazon, or Wal-Mart. Not anymore.

The No. 1 music retailer in the land is Apple's iTunes, an online store and dealer of digital music. How do you like them apples?

But this isn't the time to gloat. The digital music revolution is in its infancy. Nobody knows what works yet.

In our an interview, Merrill said that a winning business model hasn't been found, and that's what he's after.

"I think there are going to be a lot of different models," said Merrill, who starts his job as president of EMI's digital arm on April 28. "You can imagine supporting music through relevant targeted ads, the Google model. There are a dozen other things... We should try them all. We should see what the data says and whatever it says, we should follow the data, and follow our users, and let them help guide us. We should engage in a broad conversation about art."

How this plays out is anybody's guess. In the near term, we're likely to see more job cuts and shrinking revenue in the sector as we transition into what Forrester Research analyst James McQuivey calls Music 2.0. The reality is that recorded music will probably never produce the kind of revenue it once did. Digital technology has degraded the value.

There's nothing that says the labels will be part of the final equation, but I wouldn't bet against them--especially if they continue to embrace new technologies and business models. They've got lots of money. They still know how to find and create stars.

But the record companies are going to have to morph into smaller entities that represent fewer acts and then oversee their total output: music, video, concerts, and merchandise. This is the model that Live Nation is using to attract major artists, including Madonna, U2, and Jay-Z.

I say long live Music 2.0.

Imagine digital music without Apple as the marquee act.

That's what the music labels want. For years, they have wished for a legitimate challenger to wrest away some of the bargaining power Apple has wielded as the No. 1 online music seller. So, here we go again: it's another iTunes killer.

On Thursday, MySpace executives unwrapped MySpace Music. Backed by the four largest record companies and MySpace parent company News Corp., the music service will offer much of what iTunes does and more, according to MySpace's managers. But haven't we heard this before?

Urge, Sony's Connect, and SpiralFrog are only a few of the services once predicted to unseat iTunes. Of this group, only the troubled SpiralFrog continues to limp along. The other two no longer exist.

MySpace is up against music retail's supreme power in Apple's iTunes. The new service must compete with not only one of the most successful consumer-electronics makers of all time, it must do battle with arguably one of world's greatest marketers and retailers in Apple CEO Steve Jobs. Apple has dominated Internet music sales the past six years and now iTunes can call itself the country's largest music retailer--online or off--after besting Wal-Mart in sales during the first two months of 2008.

Apple's iTunes has had years to establish a large and loyal following and to develop systems that make shopping at the site simple and easy. And you can't underestimate the power of having iPod owners already plugged into iTunes.

Besides music, Apple has forged relationships with movie studios and TV networks that enable iPod owners to watch feature films and TV shows on their devices. But even though Apple has a head start with iTunes, the service will have to keep up with the industry's rapid changes.

"MySpace Music is not a serious threat for at least two or three years," said James McQuivey, an analyst with Forrester Research. "Apple's iTunes succeeds because of its connection to an amazingly popular device. As long as the iPod is central to their music strategy, they will continue to be a force. But the question is whether iTunes can adapt to Music 2.0."

The next stage in the music industry's evolution will be an all encompassing model that melds social networking, e-commerce, and music discovery.

MySpace Music is unlike any iTunes challenger that has come before. An audience of 110 million people from all over the world visit MySpace every month. About 30 million listen to music on the site, and more than 5 million music acts rely on the site for promotion.

So influential has MySpace become in the music world that last year when EMI was preparing budget cuts, it considered a plan to reduce expenses for discovering new artists by getting talent scouts to spend less time in music clubs and more on MySpace.

Nothing has done more to expose Apple to competition than the death of digital rights management. Although Jobs called for the end of DRM, there's no question that it provided iTunes with protection from competitors. With the major record companies adopting unprotected MP3s, iPod owners are free to buy songs from any music store selling DRM-free songs. Music fans are no longer locked into iTunes.

"Apple's advantage lies in the Apple iPod connecting to iTunes," said Susan Kevorkian, an analyst with research firm IDC. "But that advantage is being dissolved by MP3s that are compatible with more and more online music services. And the social networks have the opportunity to offer new dimensions to the online-buying experience. Not only can they offer information on specific bands, but they also have the ability to easily connect users to each other and share taste-making information."

MySpace's intent is to create a total immersive music experience, the digital equivalent of walking into a large record store, one that features listening posts, CDs, DVDs, vinyl albums, and in-store concerts, according to McQuivey.

"What MySpace Music does is establish a new level of expectation about what music could be in people's lives," McQuivey said. "Apple might find itself following for the first time."

But here is what MySpace should do if it seriously intends to challenge iTunes.

MySpace has to build a site that's as easy to navigate and buy music from as iTunes. That's not an easy feat. Plenty of others have failed at this, and one of the main criticisms of MySpace is that the site is cluttered and difficult to move around on.

It also needs to undercut Apple on price. That's what Amazon did. The Web's biggest store offers most songs for 79 cents, while Apple sells them for 99 cents. The company has yet to report how the strategy has worked, but nothing speaks to consumers like a bargain.

Apple offers movies and TV shows, so MySpace should cut similar deals with Hollywood. Why stop at music? If you're going to compete with iTunes, you must have at minimum everything Apple offers. That also means signing EMI, the only label among the four majors not to join the venture.

Even Apple fans should want MySpace to challenge Apple. Jobs and company have always been at their sharpest when pushed.

Rock on, MySpace.

Douglas Merrill, the new president of EMI's digital unit

(Credit: Google)

Douglas Merrill is everything one would expect from a former Google exec.

The new chief of EMI's digital unit is a Googler down to his soul, which means he's extremely bright, a techie, and dead set against suing fans for file sharing.

"I'm passionate about data," Merrill said during a phone interview Wednesday with CNET News.com. "For example, there's a set of data that shows that file sharing is actually good for artists. Not bad for artists. So maybe we shouldn't be stopping it all the time. I don't know...I am generally speaking (against suing fans). Obviously, there is piracy that is quite destructive but again I think the data shows that in some cases file sharing might be okay. What we need to do is understand when is it good, when it is not good...Suing fans doesn't feel like a winning strategy."

I just got off the phone with Merrill, Google's former Chief Information Officer who was named president of music label EMI's digital group Wednesday. He impresses me as a good-natured guy who is going to rock the boat at the label...maybe the entire industry.

This is good news for EMI, the smallest of the four top major labels. The hiring of Merrill, who has no background in music sales, represents an acknowledgment of how important digital distribution and technology is to the future of music.

What are his credentials to run the digital arm of a major record company? He doesn't have much outside of sharing a few song files back in his youth (gasp!) and a deep love of music. He said very early in the interview that he doesn't have all the answers yet on how to cure the music industry's woes. ("I don't know where my desk is," he added.)

But he's all about applying what he learned from Google about the Internet, digital distribution, and innovation. Expect to see experiments with varying business and distribution models from now on at EMI.

"You must do experiments and follow the data," Merrill said. "That's often hard because we all have intuitions. The problem is our intuitions aren't always right and Google has shown that over and over again. We've had internal discussions about 'Oh I believe the site should work this way.' We go into the experiment and we're wrong. And you have to be willing to say 'I thought it was X, I was wrong. It was really Y. That has to be OK. You have to be OK failing because most of the things we try won't work. That's why it's called an experiment. Those things are very deep in my soul."

More specifically, Merrill said he would see whether a Google ad model will work for music. But he's willing to try music subscriptions and even an ISP fee. Certainly, what came across about what strategies Merrill intends to use is that he's not married to any one idea.

"I think there is going to be a lot of different models," Merrill said. "Those are two (subscriptions and ISP fees) you can imagine. I'm not sure that either one of those will be the most dominant model. But they are both interesting. We should try them and see what the data says. Other options will be things like you can imagine supporting music through relevant targeted ads, the Google model. There is a dozen of other things...we should try them all. We should see what the data says and whatever it says, we should follow the data, and follow our users and let them help guide us. We should engage in a broad conversation about art."

He says he's leaving Google to follow one of his passions.

"I'm not running away from Google," Merrill said. "I'm running towards an opportunity to maybe help change the world."

Merrill is due to report to work at the old Capitol Records building in Los Angeles on April 28. That's the place in Hollywood designed to look like stack of albums. It's also the former workplace of Nat King Cole, Frank Sinatra, The Beach Boys and Bonnie Raitt.

Merrill and Guy Hands, CEO of EMI's parent company Terra Firma, were introduced not long ago by a mutual friend. Merrill said Hands began talking to him about moving over "very recently."

What did Eric Schmidt think of the move? The Google CEO told him, "I think it makes perfect sense for you," Merrill quoted Schmidt saying. "Eric has been a huge influence on me personally as well as professionally."

To be sure, Merrill is up against an enormous task. He's moving from one of the biggest success stories on the Web to an industry racked by plummeting revenue, layoffs, and customer dissatisfaction. It's also an industry facing labor issues.

Merrill is a fan of Nine Inch Nails so he is aware that the band's leader is the embodiment of artist dissatisfaction with music labels. Trent Reznor, who walked away from Universal Music Group last year, has helped spearhead experiments with self-distribution, mainly on the Web. Merrill doesn't appear worried about this.

"I think it's important to figure out where can record labels add value," Merrill said. "I don't know the answer. I think Nine Inch Nails' experiments have been really interesting and enlightening. We need to step back and say what is the process of artist creation and helping fans find what artists create.

"Given that as a system we need to understand how record labels fit in there," Merrill continued, "I think the Nine Inch Nails' release of Ghosts experiment was fascinating. What a great problem to have: people are trying different things. If everyone tries the same thing you'll never learn anything new. Instead we're in a situation where people are trying things. How cool is that? Some are going to work. Some aren't going to work. But we need to try them."

(Credit: Google)

Updated 5 p.m. PDT with more information and context.

Google Chief Information Officer Douglas Merrill is leaving Google to become president of EMI's digital unit, according to sources.

A Google spokesman confirmed that Merrill is leaving but said he could not confirm the other information. A spokeperson for EMI Music Group declined to comment.

A separate source familiar with the matter said Merrill will be starting at EMI later this month and that the position was created specially for him. He is staying in California, the source says. EMI, the fourth-largest record label, is based in London.

The move was a head-scratcher, bizarre enough to be second-guessed as a hoax, especially given how different the music industry is from Google's world.

Like other record labels, EMI is struggling to compete in an industry turned upside down by the Internet. The music industry has to figure out how to deal with technology that easily lets people "rip and burn" music for free instead of paying for CDs. And artists, frustrated with politics at record labels, turning to the Internet to release and promote their music.

Merrill's experience at Google, considered along with Apple as one of the most innovative technology companies ever, can help EMI navigate the digital waters better. Traditionally, record labels have been slow to adopt technology and have completely missed the boat on e-commerce. Merrill will be crucial to evaluating technology and helping EMI create an Internet strategy.

"For EMI to hire someone from Silicon Valley will offer them a huge advantage over the label next door," says Hab Haddad, vice president of business development at music management firm McGhee Entertainment, which represents rock band Kiss.

"It's a digital world and if they (music companies) can't pull the heavyweights in that have been successful in other industries they're never going to get it right for their industry," Haddad says.

The move comes at a time when the music industry is seriously hurting. Total revenue have plunged from $14.3 billion in 2000 to $10 billion last year.

And EMI needs the help, especially now. The company is under new ownership after Terra Firma bought the company last year for $4.7 billion. Since that deal was finalized, several of the label's biggest acts have bolted, including Radiohead. Terra Firma chief Guy Hands has also begun whacking costs at the company, eliminating between 1,500 to 2,000 jobs, nearly a third of EMI's 5,500-person staff.

But for Merrill the move will require either huge mental exercise or a near religious conversion. At Google, products and strategy focus on opening up content for the world to see and making it searchable by anyone with an Internet connection. This world view has repeatedly put Google at loggerheads with copyright holders and their ilk. For instance, Google has been sued over its book scanning project, its news aggregation site and its YouTube video site, where you could easily find pirated music videos and TV clips.

It will be interesting to see what an executive from a company known for pushing the envelope on fair use can bring to an industry that has rabidly protected its copyrights. Maybe he can help them use the Web to make money instead of trying to keep others from using it at EMI's expense.

On a personal level, the match might be more heavenly. Merrill's shoulder-length hair and casual attire makes clear he's not a corporate "suit." Plus he's got a bachelor's in social and political organization and a master's and doctorate in Psychology from Princeton.

In an interview with CNET News.com last year, Merrill says he got interested in online security and hacking as a kid growing up in Arkansas. He found ways to "play with" membership rolls on white supremacist bulletin boards and wanted to embarrass them.

He may be a music fan but he's definitely no music-industry insider. The only connection that can be found to music is on his personal blog--he lists the Sex Pistols, Nine Inch Nails and Mary-Chapin Carpenter among his favorite performers.

His choice of Nine Inch Nails could be important. If he follows the band at all then he knows that leader Trent Reznor is helping to spearhead a do-it-yourself movement among musicians. Reznor left Universal Music Group last year and has experimented heavily with self distribution via the Web.

Others, including Radiohead and Madonna have walked away from traditional record companies. And of course, there's big questions to be answered regarding file-sharing, ad-supported music, iPods and how to make money on digital distribution.

In this environment, Merrill might be exactly what EMI needs.

Merrill, vice president of engineering, joined Google in 2003 as senior director of information systems and led strategic efforts including regulatory activities related to Google's 2004 IPO. He oversees all internal engineering and support worldwide. Before working at Google, Merrill held information technology, engineering and security positions at Charles Schwab, Pricewaterhouse and RAND Corp., a non-profit think tank.

The news of Merrill's departure was first reported by PodTech founder John Furrier via Twitter and on his blog.

CNET News.com's Greg Sandoval contributed to this report.