January 23, 2008 1:49 PM PST

In the free music space, can CBS succeed where others have failed?

Posted by Caroline McCarthy

It's no secret: ad-supported streaming music, held up as an alternative to both paid downloads and free-for-all piracy, has hit some twists and snags. A number of well-funded start-ups, like SpiralFrog, dove into the space and few have emerged intact. Only one, Imeem, can really claim to be a success--it has licensing deals with all four major music labels--but it's still been criticized for a tepid user experience.

So it was a bit of a surprise when CBS' big announcement about Last.fm, the music-based social network it purchased last year, was the launch of a free, ad-supported streaming music service.

Previously, most music content on Last.fm had been limited to 30-second clips.

According to Quincy Smith, president of CBS Interactive (the CBS division that owns Last.fm), big media companies may be the key to making ad-supported music a success. "Only media can bring those kinds of sponsorship relationships," he said in an interview with CNET News.com, adding that broadband penetration has reached a point where streaming music is legitimately viable.

With the new on-demand music program from Last.fm, which launched Wednesday in the U.S., U.K., and Germany, CBS has all the majors on board as well as over 150,000 independent labels and artists. Additionally, it has an "artist royalty" program so that unsigned artists who upload their music to Last.fm will receive a cut of the ad revenue when a track is played.

Smith said that Last.fm's music recommendation and "scrobbling" engine may also give it an advantage in the ad-supported music space, because that data can potentially help advertisers choose where to place their ads. "You've got targetability," he said, "and not in a freaky, invasion-of-privacy way." Presumably, that could lead to better advertiser confidence and higher click-through rates. People who listen to a lot of pop, for example, could see ads for Justin Timberlake concert tickets; country fans could be served up Nascar ads, or movie soundtrack fans could see ads for the latest blockbusters.

But targeted advertising, like many of the other developments that CBS Interactive plans with Last.fm, hasn't been rolled out yet. "We wanted to make sure we got that announcement out there to the consumers first," Smith explained. Later, we'll start to see some of the projects that were rumored yesterday, when it became evident that Last.fm was making a big announcement--including, perhaps, a video-related service.

"We certainly own (the domain) Last.tv," Smith said.

But even an established media powerhouse like CBS hasn't been able to completely nail down the model. Last.fm's streaming service has already gained a bit of criticism because tracks can only be streamed three times--after that, the user is given the option to buy the track from a Last.fm retail affiliate partner like iTunes or Amazon MP3. When asked about this, Smith said that the three-song limit wasn't CBS' choice.

"It was a joint decision from all parties involved," he elaborated. "You've got to do the baby-step thing with these guys."