February 18, 2008 8:49 PM PST

MySpace's music plan likely to be streaming service

Posted by Greg Sandoval

Beware, SpiralFrog and Imeem. A powerful new player is eyeing your ad-supported music turf.

MySpace.com is in talks with the four major record labels about starting a free-to-consumer music service, a source with knowledge of the talks told CNET News.com on Monday night. So far MySpace and the labels are just talking, the source said, but PaidContent, the blog that broke the news, reported that the music companies are being offered an equity stake in the News Corp.-backed start-up.

A MySpace spokeswoman declined to comment Monday evening.

There are conflicting reports about whether the new music service would offer downloads or stream music to PCs. PaidContent reported that it's downloads, but Silicon Alley Insider reported that its sources said the site would stream songs.

My source couldn't confirm either way, but I have a hunch that it's streams. Here's why:

The labels have shown almost no interest in giving away downloads via an ad-supported site. SpiralFrog has struck a partnership with only one top record company (Universal Music Group) in two years of trying. Qtrax, another ad-support download service, can't boast a single major label yet, but the start-up is still negotiating.

Ruckus is an ad-supported download service that has partnered with all the big labels but caters only to college students.

Meanwhile, social networks Imeem and Last.fm stream music to users' PCs and each has signed deals with all four majors.

The labels like streaming because it locks up their music on PCs and protects it from piracy. Streaming also encourages sales, or so the music companies hope. The thinking is that Imeem and Last.fm users will eventually purchase music they discover on the social-networking sites.

What could sink my theory is if MySpace is willing to pay so much for downloads that the labels have to say yes. With Facebook breathing down its neck, MySpace could bet that offering free music to users--in exchange for looking at some ads--would be a whopping advantage over competitors.

News Corp. has the kind of deep pockets that it could afford to keep a loss leader like this going for a couple of years.

Regardless, the big winners in either scenario are consumers. Free and legal music is getting easier to find all the time.