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Qtrax, the legal P2P music start-up, really has signed a licensing agreement with a major label this time.

On Tuesday, the company announced it has inked a deal with Universal Music Group, the largest of the four major record companies. The partnership comes four months after the labels denied the company's claim that they had agreed to supply music for the site.

"Qtrax will now have access to the most extensive digital music catalog of chart-topping artists in the world," Universal Music Group said in a statement.

Qtrax, an ad-supported P2P service, didn't ballyhoo the news this time. The service, designed to offer a legal alternative to illegal file sharing, instead quietly issued a brief press release. This is in marked contrast to the way the company launched the site in January--with a star-studded party and lots of breathless quotes from executives.

The press punished the company when it was revealed that Qtrax possessed no signed contracts with any of the four top music companies.

A Qtrax spokeswoman declined to comment, so there's no word on when it might sign the other three labels.

The Pennsylvania mother who sued Universal Music over a YouTube video of her toddler dancing to a Prince song isn't having much luck in court.

Last October, we wrote about the suit that Stephanie Lenz filed in federal court in San Jose claiming the record label had abused the Digital Millennium Copyright Act by sending YouTube a notice of copyright infringement. Three lawyers from the Electronic Frontier Foundation are representing Lenz.

Lenz's 30-second video shows her son Holden, then 13 months old, dancing in the family's kitchen with the Prince song "Let's Go Crazy" partially audible in the background (Universal represents some of Prince's publishing rights). It led to a DMCA takedown notice from Universal.

On April 8, U.S. District Judge Jeremy Fogel threw out Lenz's lawsuit against Universal, saying the argument that Universal was misusing its copyright was weak--and that the case wasn't really akin to the Diebold wrongful-use-of-the-DMCA lawsuit. Here's what Fogel wrote:

Diebold is distinguishable based on its facts; although it included a takedown of hundreds of emails, the defendant failed to identify any specific emails containing copyrighted content, and it appeared to acknowledge that at least some of the emails were subject to the fair use doctrine. Here, it is undisputed that the song "Let's Go Crazy" is copyrighted, and Universal does not concede that the posting is a fair use... There must be a showing of a knowing misrepresentation on the part of the copyright owner. Lenz fails to allege facts from which such a misrepresentation may be inferred. Lenz also fails to allege why her use of "Let's Go Crazy" was a "self-evident" fair use. Accordingly, Lenz's first claim will be dismissed, with leave to amend.

Fogel also rejected the other two arguments. EFF had asked for a ruling that the 30-second snippet did not violate copyright law; Fogel concluded it was unnecessary because "Universal has indicated it had and presently has no intention of ever asserting an infringement action directly against Lenz based on the 'Let's Go Crazy' video."

The video, by the way, is back up on YouTube.

But Fogel did say that EFF could try to make its misuse-of-copyright argument a second time. EFF did just that by filing a second complaint (PDF) on April 18. It says, in part:

Defendants had actual subjective knowledge of the contents of the Holden Dance Video and that it did not infringe any Universal copyrights on the date they sent YouTube the takedown notice regarding the Holden Dance Video... Defendants should have known, if they had acted with reasonable care or diligence, or would have no substantial doubt had they been acting in good faith, that the Holden Dance Video did not infringe any Universal copyrights on the date they sent YouTube their complaint under the DMCA.

The case is noteworthy because so few lawsuits over DMCA misuse have been filed. Diebold, which sent dozens of cease-and-desist letters after internal leaked documents appeared online, appeared before Judge Fogel--and ended up writing a check to EFF for $125,000.

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.

A new music service jointly owned by News Corp.'s MySpace.com and three record labels will be announced Thursday, according to a source familiar with the deal.

MySpace Music has been expected for weeks and will offer streaming music, downloads of unprotected MP3s, concert tickets, ringtones, and other merchandise, the source told CNET News.com. The source added that MySpace is hopeful the service will open in the next few months.

The deal immediately catapults News Corp. Chairman Rupert Murdoch into competition with Apple CEO Steve Jobs' iTunes, which offers music and video downloads. Backers are hoping MySpace Music can compete against iTunes by providing MySpace's 110 million worldwide monthly visitors a sweeping range of music services and products that eclipse iTunes' offering.

(Credit: MySpace.com)

It's been well-reported that label honchos think Jobs and his ubiquitous iPod have amassed too much control. MySpace Music is apparently part of a strategy by the big music companies to find an iTunes competitor, even if they have to help create one.

The music service enables MySpace to leap past competitors Imeem and Last.fm, which beat MySpace to the punch when they began providing free, streaming music to users. But now, MySpace can present everything those services do and much more. Facebook was reportedly also in talks with the major record labels, but the music industry source said that unless something dramatic happens, Facebook is months away from being where MySpace is now.

MySpace Music will launch with songs from three of the top four record labels: Universal Music Group, Warner Music Group, and Sony BMG Music Entertainment. The only label that hasn't agreed to the deal is EMI Music Group, said the source, who added that MySpace and EMI executives are working around the clock to close the deal and everyone involved is confident that EMI will eventually be part of the service.

All the labels will receive a minority share in the company and a share of all the revenue generated from the site, according to the source, who spoke on condition on anonymity.

Universal Music Group was thought to be holding up the service because of a copyright-infringement lawsuit that it filed against MySpace last year. MySpace has agreed to pay a "huge" settlement, according to Peter Kafka at Silicon Alley Insider.

Doug Morris is supposed to be the music industry's hard-liner.

The chairman and CEO of Universal Music Group, Morris yanked music videos off Yahoo and sued MySpace for copyright infringement. He threatened to pull songs from Microsoft's online music store unless Bill Gates forked over a $1 for every Zune music player sold. He seethed over Apple CEO Steve Job's refusal to let him and the other label execs set song prices on iTunes.

So why is he now offering Jobs a plum of a deal?

Morris has approached Apple with an idea to offer a device that comes preprogrammed with Universal Music's entire library on it, sources told CNET News.com. A music industry source said Wednesday night that Apple has broached the idea of bundling music with the other three major labels but didn't show much enthusiasm for the plan. "Apple was just inquiring about whether this kind of thing would interest (the other record companies)," said the source.

It's clear now, two days after The Financial Times broke the news about the Apple-label discussions that Morris, not Jobs, came up with the idea.

Insiders say Universal Music, whose artists include U2, DMX, and The Killers, wants to pump life into subscriptions, and is tired of seeing Apple selling songs cheap and making fat margins on the music players. Not surprisingly, he wants a slice of device sales from any gadget maker that licenses his music. Morris also has ambitions of turning Universal Music into a total entertainment company.

The plan now is to "partner instead of just being a vendor," a source close to the label told News.com.

Universal revamping strategy
In the proposal Universal Music pitched to Apple, the device would come with all-you-can-eat music for a period of time, perhaps a year, and then owners would be "rolled over into a subscription service."

Label wants to breathe life into subscription services

(Credit: Universal Music Group's Web site)

Subscriptions services, such as Napster, Yahoo Music and RealNetworks' Rhapsody are dwarfed by Apple's download store but are still very important to executives at Universal Music, say insiders. They see it as a way to get people to keep paying for music and to keep tabs on what audiences are listening to, sources say.

Universal Music was a big backer of an ISP tax, according to reports. And last October, BusinessWeek reported that Morris had also toyed with the idea of enlisting the other three majors to create a music-subscription service. The plan seemingly was derailed when the U.S. Justice Department began investigating whether such a consortium would violate antitrust laws.

"These guys at Universal," said one music insider, "are so obsessed with this subscription thing...but there are publishing issues involved with bundling and I don't think they make much money off it."

What can't be overstated is Universal Music's desire to get a taste of device sales, insiders say. Back when Apple's iPods became the rage, everybody in the music industry realized they missed an opportunity. While Jobs made pennies on song sales at iTunes, he pocketed 50 percent profits on some iPod models, according to estimates by iSuppli.

It's safe to say that almost all the major players in the music industry see that as unfair. They argue that what people want isn't a music player. It's the music.

That's why Morris went after--and got--a share of the Zune as well as devices offered by Sirius Satellite Radio, XM Satellite Radio and Nokia.

The FT reported that Morris wants $80 for any Apple device bundling Universal Music songs, while Apple has offered $20.

Getting a share of music players is smart, said Forrester Research analyst James McQuivey, even if it is late. But he warns that whatever gains the labels make on device sales, they could lose in other areas. Allowing Jobs to place their music catalogs on a single device might allow him to offer a breakaway handheld that could overshadow any other gadget or music service out there.

"The labels would just be turning over their music to another Apple-only environment," Forrester Research analyst James McQuivey said. "Nobody would want anything else."

"This kind of offer would kill CD sales far more quickly," McQuivey said. "You'd be giving people that typically buy music a reason to quit buying. Besides killing off CD sales, the music industry would harm two areas that are going strong for it right now. One is MP3 sales and the other is the (free streaming) music offered by social networks Imeem and Last.fm. If I were the music labels, I would tell Apple to come back in 2009, after I've given these other services opportunity to grow."

Updated: 8:10 a.m. PDT

Is Apple rethinking its music strategy?

As part of a deal to offer devices featuring preprogrammed music, Apple would have to agree to share sales revenue from the devices with the labels, says a source close to the deal. Cutting the labels in on iPod or iPhone revenue would mark a sharp turn in Apple's strategy.

The deal being discussed by the labels and Apple calls for the company to license the music and also "kick in a piece of the device sales," said the source. The Apple device, which hasn't been determined yet, would come preprogrammed with a certain amount of music that after a period of time, perhaps six months or a year, would roll into a subscription type of service plan, the source said.

Apple began informal discussions six months ago with Universal Music Group, the largest of the four major music labels, about offering preloaded music on devices, according to the source, who requested anonymity. Talks began in earnest two months ago, the source said, adding that Apple has opened discussions about the offer with all four of the major labels.

An Apple representative said: "We don't comment on rumors and speculation." Representatives from the four top record labels either did not return calls or declined to comment.

The talks are still in a preliminary stage and nothing has been decided, the source said. The Financial Times was first to report on the negotiations between Apple and the record companies.

The service being discussed is similar to one struck between Universal Music and Nokia last year. In December, Nokia announced its "Comes With Music" service, which allows users to buy a Nokia device preprogrammed with a year of unlimited access to a subscription service featuring Universal's songs.

"Comes With Music" is due to start in 2008.

With the Nokia deal, Universal Music receives a share of device sales, just as it does with Zune, and those sold by Sirius Satellite Radio and XM Satellite Radio.

The days of allowing Apple and other device makers to earn enormous profits off the backs of music artists is over, said the source. For a long time, many in the music industry have chaffed at the success of Apple's iPod. They acknowledge iPods were expertly designed and marketed, but they argued the gadget's real attraction was the loads of music that owners could store on them.

"At this stage in the game, the music industry feels it is entitled to something," said the source.

Apple hasn't discussed specific devices with the labels, according to the source. So one could only wonder whether the company would offer the preprogrammed music on a new high-end device, the next-generation iPhone, or some iPod models.

The FT reported that subscriptions would currently work only for Apple's iPhone devices, because it already has a monthly billing relationship with customers through the mobile phone operators offering the device. The "Comes With Music" model, on the other hand, would work with iPhones and iPods.

Universal Music has been driving the preprogrammed idea for some time in an effort to inject some excitement into subscription services, which have seen only lackluster consumer interest.

The record company is in talks with other carriers in addition to Apple as it attempts to expand its relationship with device makers, said the source. Universal Music is dissatisfied with only licensing music. The plan now is to "partner instead of just being a vendor," said the source. Universal Music has aspirations of becoming more of an all-around entertainment company, the source added.

Cutting a slice to Universal Music is one thing, but what about the other three labels? That could mean some serious money and at the very least cut into Apple's margins.

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.

A digital rights group in Ireland condemned legal action taken by the major music labels against an Irish ISP.

Lobby group Digital Rights Ireland warned that attempts by the four largest music labels to hold ISPs accountable for copyright violations committed by users threatens privacy, and Ireland's reputation as an "Internet-friendly country," according to a story on Siliconrepublic.com.

"Internet Service Providers (ISPs) are intermediaries. They are not, in law, responsible for what Internet users do, any more than An Post is responsible for what individuals send in the mail," Digital Rights Ireland chairman, TJ McIntyre, told the online publication.

Universal Music Group, Sony BMG Music Entertainment, Warner Music Group, and EMI Group brought legal action against Eircom, the largest telecommmunications operator in the Republic of Ireland, according to the report by Siliconrepublic.

The labels claim that the ISP has refused to implement a filtering technology by Audible Magic that would block illegal file sharing. McIntyre argued that the content filter would erode privacy of Eircom users.

The idea of requiring ISP's to filter has picked up steam in recent months. Most notably, the manager of rock group U2, called for ISPs to more aggressively scrub copyright-infringing content from their networks.

While Europe has taken more of a regulatory approach, in the U.S. there is a Digital Millennium Copyright Act, which proponents say relieves ISPs from responsibility for copyright violations by users.

DivX, parent company of defunct video-sharing site Stage6, on Tuesday disclosed how it came to the decision to shutter the service rather than to sell.

"Potential copyright litigation" was one of management's top considerations leading up to the shuttering of Stage6, Dan Halvorson, DivX's chief financial officer, said during a conference call to announce the public company's fourth-quarter earnings. There was reason for concern. Turns out DivX, a maker of Internet-video technologies, had lost a bid to avoid fighting costly copyright suits just a few weeks before Stage6 was closed, records show.

Halvorson almost certainly explained the reasoning behind the shutdown because of questions raised by Brad Greenspan, the MySpace co-founder. Greenspan, who operates online entertainment network LiveUniverse, attempted to acquire Stage6's assets last month. When he was rebuffed, he went public.

Greenspan suggested in a press release that DixX managers failed to look out for shareholder interests by choosing to close Stage6 instead of selling.

The controversy illustrates some of the financial and legal risks involved in operating a video-sharing site. YouTube, buoyed by Google cash, can afford to challenge entertainment conglomerates in court. Not everybody else can.

DivX's problems started this way: last fall, Universal Music Group, the largest of the top four labels was making noise about unauthorized copies of its content posted to Stage6. In a bid to head off a lawsuit from the record company, DivX filed first. In September, DivX sued Universal Music to try to win a favorable ruling that Stage6 was not responsible for illegal acts committed by users under the Digital Millennium Copyright Act.

It didn't work.

On February 5, just three weeks before Stage6 went dark, U.S. District Judge Dana Sabraw (PDF) dismissed DivX's action against Universal Music, according to court records. (Blogger Davis Freeberg was first to report the judge's decision.)

Not surprisingly, a month after DivX filed suit against Universal Music, the label responded by filing against DivX. That copyright case still hangs over DivX's head. One interesting side note is that DivX could have bought its way out of the mess. Universal Music offered DivX a chance to license its content for $30 million, according to papers filed with the court. The offer was turned down.

Beyond the legal questions, DivX also said the "significant costs" of running Stage6 was a factor in its closing.

"Our previous indication regarding the cost of running Stage6 remained accurate," Halvorson said in the conference call. "While the traffic to Stage6 did help generate some revenue...the continued operation of the site would take substantial financial investment."