Music websites are fighting to be free

LOS ANGELES -- There's a new music revolution brewing, and it's social.

Social music sites Imeem and Last.fm — which offer on-demand, ad-supported free music — have grown rapidly to 20 million monthly users each. Their success has the music industry seriously exploring the viability of ad-supported, free music as the next big business model for online music.

"This is driven by the reality of the way the Web is working now, and the amount of advertising dollars moving to the Internet," says Rio Caraeff, executive vice president of eLabs, Universal Music's digital arm. "This is about going where the money is and where the fans are, and giving customers what they want, which is free music."

In the wake of declining CD sales, the music industry has struggled with new ways to market music online. Apple's iTunes store is one powerhouse, with over 4 billion songs sold since 2001. But the industry has had little success trying to incubate alternatives, such as monthly subscriptions for on-demand music. Just this week, Yahoo announced it would close its subscription music service and migrate its customers to Rhapsody.

Last week, start-up Qtrax threw a splashy launch party at a European trade show for a free, ad-supported music-download service. It fizzled after the major labels said it had no signed deals. Another start-up, Spiral Frog, offers free, ad-supported downloads, but only one major label, Universal, has signed on.

The latest trend is ad-supported, on-demand online music streaming, most notably, Imeem and Last.fm.

The old negative for such Web-only services — that you can listen to a song, but can't download it — no longer appears to be an issue. In the age of always-on, high-speed connections, "Who cares?" says Quincy Smith, president of CBS Interactive, which bought Last.fm for $280 million in 2007.

Imeem and Last.fm are positioned as music communities, where friends tell each other about what songs and artists they like. Since the sites have licensing agreements with the four major labels, fans can share songs and playlists with each other. Last.fm restricts users to listening to a song just three times, while Imeem has no restrictions.