Yesterday, star venture capitalist John Doerr of Kleiner Perkins forked over $150 million in funding to Twitter.

At at $3.7 billion valuation, that got him a big chunk of the San Francisco microblogging site.

But what it didn’t get him was a seat on the board of Twitter, which many figured he would be given for after handing over so much moolah.

According to sources familiar with the situation, that’s due to Doerr’s being a director on another board: Google.

Several sources who BoomTown spoke to, after breaking news of the massive funding, said that his being on the board of the search giant was seen as too much of a conflict of interest.

A conflict because Google has plans to wade deeply into the social space. And also, of course, because it is the No. 1 potential acquirer of Twitter, as the Silicon Valley company seeks to gather more tools to fight its latest rival, Facebook.

Doerr has very deep ties at Google, having been on its board since mid-1999.

He got that seat, along with Sequoia Capital’s Mike Moritz, after he ponied up a critical $25 million equity round for Google in June of that year.

Interestingly, no other Kleiner partner was named to a Twitter board seat either.

But, some speculate, it might make sense for Mary Meeker–who just joined Kleiner to head up digital investing efforts, after a long-time stint as a Wall Street analyst for Morgan Stanley–to eventually become a Twitter director.

Meeker has, of course, deep IPO and M&A experience.

And, frankly, after adding Flipboard’s Mike McCue and former DoubleClick exec David Rosenblatt yesterday and former Netscape exec Peter Currie recently to its all-boy board band, a woman director might be a good idea to consider.

Other directors at Twitter include Benchmark Capital’s Peter Fenton, Union Square Venture’s Fred Wilson, Bijan Sabet of Spark Capital, Co-founders Evan Williams and Jack Dorsey and CEO Dick Costolo.

I reached out to Doerr for a comment, but he has not yet replied; Twitter declined to comment.

Even more interesting to consider is what Kleiner will invest in next after this mega-funding, given how aggressively many sources said Doerr had pushed to lead the Twitter round.

And, in fact, sources said that Kleiner is looking closely at new funding rounds for both the Spotify music streaming service and Groupon, the social buying start-up that recently decided to turn down a $6 billion acquisition offer from Google and an earlier $3 billion one from Yahoo.

Groupon is now seeking more funds to remain independent and hold onto its lead in the fast-growing local discounting market, sources said.

(Bloomberg also reported on Groupon’s new fundraising efforts, although it was written about after it turned down the Google offer.)

And Spotify, which is hugely popular outside the U.S., is trying to enter this market, but needs more funding to expand and perhaps strike better deals with music labels.

Both are the just the kind of companies Doerr has targeted in what looks like a serious effort to compete with other firms–especially Andreessen Horowitz and Russia’s DST Global.

They have garnered the heat Kleiner used to have, largely by backing more of the top entrepreneurs recently.

Doerr has already put money into social gaming phenom Zynga and also started an sFund for social-focused investments.

Add Twitter to the pile and you can see where this is headed: Except for the board seat, John Doerr will no longer be denied.

Once you’re there, you’ll see that “Black Friday” is the day’s Promoted Trend. And if you click on the term, you’ll see that Target has purchased the phrase for the day. Which means that anyone who clicks through will see this ad/Tweet:

And then lots of other Twitter chatter about Target.

Don’t know what Target paid for the privilege, but it seems like a reasonably good way to deploy marketing money.

Except! Scan down the list of the day’s other top trends–the phrases that Twitter doesn’t sell, but are based on whatever Twitterers are Tweeting about–and you’ll see that Wal-Mart makes the list, too. How’d that happen?

Twitter PR tells me that “Walmart=organic.” Which is pretty funny to type, but not exactly true.

Because I’m pretty sure the reason that Wal-Mart is a trending topic today is that Justin Bieber, who has more than six million followers on Twitter, Tweeted about it:

So that’s not the same as “Wal-Mart” simply bubbling up because lots of Twitter users are talking about it without prompting.

There’s almost certainly a commercial relationship between Bieber (or, more likely, Universal Music Group, his label) and Wal-Mart. And that’s why Bieber (or, more likely, someone he pays to type out Tweets) is Tweeting about Wal-Mart instead of Target or Best Buy or… what other stores still sell music these days?

But since Twitter itself isn’t making money off  the transaction, the Twitter folks can count it as “organic.”

Question for another time: If Justin Bieber–or his label, or Wal-Mart–is going to use Twitter to advertise goods and services, why doesn’t Twitter make money from that?

And while Warner, and the rest of the industry, had been hoping that Google might launch a music service that would give sales a boost this year, that doesn’t look likely. The new hope: Google arrives sometime next year.

That’s the line from Warner CEO Edgar Bronfman Jr. during his company’s earnings call this morning. Bronfman said he’s hoping that Google and other services “will come online in calendar 2011,” and that they’ll create “very significant opportunity both for consumers and the music industry.”

Any more detail than that? Nope.

But Bronfman did have a few nice things to say about Spotify, the much-hyped music service that has yet to launch in the U.S. Warner has renewed its European licensing deal with the service, which offers both free and subscription options, and Bronfman murmured some hopeful things about getting something done in America.

In Europe, the new Spotify deal “was a long time coming, [and] was not easy for us, and not easy for them,” Bronfman said, and says he’s “hopeful” the two companies can reach an agreement.

As I’ve previously reported, music sources say that Spotify and Sony have essentially reached an agreement for a U.S. launch. And the consensus seems to be that the service is close to getting something done with Universal Music Group, the world’s largest label.

So the question for Spotify is whether it needs to get Warner on board before it can launch in the U.S., something it continues to insist it wants to do this year.

Spotify officials have previously said that they’d only go forward with three of the big four labels on board, which makes sense–no point in launching a service that doesn’t have lots of the music people want to hear.

On the other hand, if the Spotify guys wait to get Warner–or EMI Music Group, the other major label–on board before launching, they could get held up for quite some time.

Speaking of EMI Music, what does Bronfman think of the label’s deal with Apple that brought the Beatles to iTunes? He thinks what most of you think: “I don’t know how impactful, after 10 or 12 years of digital business, their coming to iTunes will be,” he said.

But it does give Apple the ability to run a very cool marketing campaign, and that will get more people into iTunes. And that’s good for Warner–and everyone else who sells stuff there.

*You really can’t stress this point enough: We’re a decade past Napster, but the music industry still runs on CD sales. In Warner’s case, digital now accounts for 25 percent of overall revenue.

Now, on to real news: There is no official news about the streaming music service’s attempt to land on U.S. shores. Spotify has yet to land a single U.S. label deal, even though it continues to insist that it will get things settled in time for a 2010 launch.

But the company has made progress with the labels in recent weeks, according to multiple sources. That’s in part because it is now willing to hand over real money, either in the form of advances or as guarantees spread throughout the life of a multiple-year contract.

How much money? Depends on who you talk to: One source thinks Spotify is now offering “tens of millions” to the labels to get a U.S. deal done; another person familiar with negotiations thinks Spotify will eventually end up spending $100 million to get the big four labels–or at least three of them–in line for a launch.

But money alone won’t get Spotify into the U.S. Or put another way: The amount of money will depend in part on the real sticking point in the negotiations–the amount of free music that Spotify users can listen to before they need to become paying subscribers.

In Europe, where Spotify has been a very big success, listeners can stream an unlimited amount of music, on demand, without ever paying a cent. But in the U.S., rival streaming services like Rhapsody, MOG and Napster generally only offer a very brief trial period of a few days before requiring that a pay wall go up.

For the past two years, Spotify has insisted that free, unlimited streaming is the only way the service will work, because that’s Spotify’s most effective marketing technique. Subscribers who do pay up get benefits like ad-free music, and the ability to port their songs to mobile devices like iPhones.

But the labels, most notably Warner Music Group, have insisted that unlimited free streams only serve to strip away their product’s remaining value–if you can listen for free on Spotify, why would you ever buy another CD or iTunes single?

“[Spotify executives] are perennially underestimating label resistance to the free stuff,” says an industry source familiar with the discussions. “And it seems the checks are either not big enough or the labels really won’t give on free.”

Until that gap gets solved–either via compromise or cash–Spotify can’t come to the U.S.

The company had recently been discussing a mid-November launch date, but unless things move quickly, that can’t happen. And even people who are optimistic about the company’s chances concede it may not get it done in time for a pre-Christmas launch, which would force things back to 2011. Spotify declined to comment.

Among the four labels, Sony appears closest to a deal, sources say–a pact is “essentially signable,” according to one source, though another insists there is nothing “executable.” Sony declined to comment. In order to launch, though, Spotify will also need Universal Music Group, the world’s biggest music company, and either Warner or EMI Music Group.

But if Google (GOOG) does it right, it makes perfect sense for the search giant to jump in anyway.

As CNET reported last week (The Wall Street Journal followed up yesterday), Google has been talking to the big music labels about launching its own music service and has floated a 2010 launch date. But music sources I’ve talked to say the company has no deals with labels yet and that it’s still unclear exactly what kind of service the company would like to launch.

My suggestion: Start simple. Copy the iTunes pay-per-song model.

That’s not a revolutionary idea, and it’s not a super-lucrative one either, because most people don’t like to buy more than a few songs: Apple (AAPL) sells about two billion songs a year, and if Google launches a competing service, I doubt it’s going to grow the market by much. And given that about two-thirds of every digital download dollar gets passed back to the music labels/artists/publishers/etc., that’s a fairly modest market to fight over.

But a download store is a proven concept. And that may be a better one than trying to get people to pay the $5 to $10 a month fee that services like Napster and Rhapsody have tried with very limited success and that new entrants like Rdio, MOG and Spotify (one day) want to try again. And it’s a much better idea than trying to figure out how to sell enough advertising to pay for free music services (RIP, Imeem; good luck, MySpace Music).

Meanwhile, a viable music store gives Google the following:

• A value-add for Android and a wedge against one-time ally Apple
• An owned-and-operated destination for all the music search traffic Google currently sends out to MySpace Music (via iLike) and Rhapsody, Pandora, etc.
• And just maybe, a reason for consumers to finally sign up for a Google Checkout account, which has had little traction despite years of effort. If Google can get Google Checkout up and running and create the billing relationship with its users that Apple and Amazon (AMZN) already enjoy, then all sorts of other businesses, from YouTube movie rentals to Android app sales, become much more interesting.

So what about the notion of a cloud-based service, wherein Google hangs on to your tunes and streams them to you on demand? Cool. But not crucial.

Apple has expressed an interest in something similar, but from what I can tell, it isn’t close to launching anything like it. So perhaps the Google guys see this as their chance to leapfrog Steve Jobs and company.

But successfully copying them would a fine start, too.

You can read all of U.S. District Court Judge Kimba Wood’s ruling at the bottom of the post. But the short version is that Wood, using the Supreme Court’s Grokster decision as a guide, found that LimeWire is indeed guilty of copyright violations. In her words:

LimeWire… (1) is aware that LimeWire’s users commit a substantial amount of copyright infringement; (2) markets LimeWire to users predisposed to committing infringement; (3) ensures that LimeWire enables infringement and assists users committing infringement; (4) relies on the fact that LimeWire enables infringement for the success of its business; and (5) has not taken meaningful steps to mitigate infringement.

LimeWire is unusual among post-Napster, post-Grokster file-sharing operations in that it operates out in the open, in the U.S. The company, based in New York City and owned by investor Mark Gorton, actually sells a smattering of music itself with the blessing of some of the smaller music labels. But while the company has been engaged in a long back-and-forth with the big guys, it has never reached a settlement.

Meanwhile, almost all of the music available on the service (93 percent, according to a study used in the lawsuit) and even more of the stuff actually downloaded (98.8 percent, via the same study) is protected by copyright and should not have been there. Court documents state that LimeWire generated revenue of $20 million in 2006.

LimeWire does tell its users they shouldn’t steal music. This is the warning you get when you try to do so:

But that’s not enough, Wood ruled. And certainly not when the service was going out of its way to court users searching Google (GOOG) for free tunes. From her ruling:

LimeWire conducted a marketing campaign through Google AdWords, whereby Google users who entered certain search queries, such as “replacement napster,” “napster mp3,” “napster download,” “kazaa morpheus,” “mp3 free download,” and dozens of other phrases containing the words “napster,” “kazaa,” or “morpheus,” would see an advertisement leading them to the LimeWire website.

The next step in the case is a June 1 conference. Here’s LimeWire CEO George Searle’s statement, which doesn’t include a vow to appeal the ruling:

LimeWire strongly opposes the Court’s recent decision. LimeWire remains committed to developing innovative products and services for the end-user and to working with the entire music industry, including the major labels, to achieve this mission. We look forward to our June 1 meeting with Judge Wood.

And here’s the end-zone dance from Mitch Bainwol, CEO of the music industry’s lobbying group:

This definitive ruling is an extraordinary victory for the entire creative community. The court made clear that LimeWire was liable for inducing widespread copyright theft.

LimeWire is one of the largest remaining commercial peer-to-peer services. Unlike other P2P services that negotiated licenses, imposed filters or otherwise chose to discontinue their illegal conduct following the Supreme Court’s decision in the Grokster case, LimeWire instead thumbed its nose at the law and creators. The court’s decision is an important milestone in the creative community’s fight to reclaim the Internet as a platform for legitimate commerce. By finding LimeWire’s CEO personally liable, in addition to his company, the court has sent a clear signal to those who think they can devise and profit from a piracy scheme that will escape accountability.

We are gratified by the court’s careful and thorough analysis of the facts and applicable law.

Bigger question: What does this mean for the music industry? Assuming Wood’s ruling stands, this one will definitely feel good for the labels, and it would have been a very big deal had they lost. But it certainly won’t help them in fighting less formally organized P2P services or those set up outside the U.S.

Arista Records Summary Judgment Opinion

That’s what Universal Music Group is hoping. The world’s biggest music label is pushing a plan to sell all its CDs at a retail price of $10 or less, Billboard reports. Given that all the big labels are currently selling discs at wholesale prices of $10 to $12, that’s a big price chop.

(An update from UMG, which says it hasn’t committed to the new pricing: “This test comes after extensive consumer research and conversations with our retail partners, and we will be looking at such variables as greater selection at sharper pricing on front-line releases. We expect to begin the test in Q2.”)

And it has been a long time coming, since on the Web, the price of an album ranges from nothing (via legal streaming sites and pirate services) to $9.99 or so on Apple’s (AAPL) iTunes.

You could argue that people still buying physical discs are unlikely to be comparing prices with digital alternatives. But there is indeed evidence that consumers respond to cheaper discs. Billboard relays the example of Trans World Entertainment (TWMC), which runs the F.Y.E. and Coconuts chains:

In the last few months, Trans World Entertainment began testing the $9.99 price point in over 100 stores, while Wal-Mart has been telling the majors to release shorter albums at lower prices more frequently.

The Trans World test–in which most independents and every major except for the Warner Music Group participated–produced units sales increase of more than 100%, according to label executives who participated in the tests. The Trans World test helped sell the new pricing model to the Universal labels, sources say.

On the reluctance by other majors to so far address the $10 retail price point issue, one source says, “The definition of idiocy is doing the same thing over and over and expecting a different result. Things are not going to get better for CD sales unless the price point is addressed. One thing that the Trans World test shows for sure, $10 will drive sales and traffic.”

My colleagues are lapping the last one up, with good reason: The OK Go are fun to write about, because they make cool videos and because lead singer Damian Kulash is very quotable when he talks about the state of the music business and his band’s relationship with EMI.

For instance, here’s a stinging part of his exit interview with New York Magazine today:

Q: What other problems were you having with EMI?
A: ?The issue is that they just don’t have any money. The reason a band signs with a label is because they can provide start-up capital, and their business model has sort of collapsed. There was lots of little bones of contention, like when there were chances for us to promote things and they just didn’t have the money to do so. It was a lot easier to be generating the budget ourselves or through corporate partners.

EMI has issued a boilerplate quote wishing the band success–it’s going to create its own label–and leaving it at that.

And EMI does have real money problems. In part because everyone who sells music right now has money problems and in part because private equity fund Terra Firma paid too much and took on too much debt when it bought the label three years ago.

But here’s the thing. If EMI’s executives allowed themselves to speak candidly, they would likely point out that while the OK Go made great videos, it didn’t seem to make music that many people wanted to buy.

Soundscan says the band has sold all of 500,000 albums in the U.S., both in physical and digital form, in its three-album tenure at EMI. That’s 488,608, to be exact. Plus another 25,000 single tracks.

That’s not awful. But it’s not the kind of sales that would inspire a big label to spend big money promoting an act. Even when the industry’s business model was still intact.

But the band really does make nice videos that people like watching on Google’s (GOOG) YouTube. If it can figure out how to turn these into dollars, it’s all set.

OK Go–This Too Shall Pass from OK Go on Vimeo.

Leoni-Sceti came to the company in July 2008, a move that raised plenty of eyebrows as he had zero experience in the music business. His background was marketing packaged goods like Woolite and French’s Mustard.

But in retrospect it doesn’t really matter who Terra Firma brought in to run the company; the investment group’s big mistake was paying too much for EMI, using too much debt, in 2007.

At this point, the real question for EMI isn’t who runs it, but who owns it. There’s a decent chance that Terra Firma will breach a banking covenant in coming months and that control of EMI will go to Citigroup (C), which owns most of the label’s debt.

The conventional wisdom is that part or all of  EMI will end up in the hands of longtime rival Warner Music Group (WMG) sooner or later.

Release:

CHARLES ALLEN BECOMES EXECUTIVE CHAIRMAN OF EMI MUSIC LONDON, 10 MARCH 2010 — EMI Music announces the appointment of Charles Allen as its Executive Chairman.

Charles has been non-executive Chairman of EMI Music since January 2009, chairing its Board and supporting the transformation of the business. Elio Leoni-Sceti, EMI Music’s Chief Executive, who has successfully led EMI Music through the first phase of its operational turnaround, will be leaving the company on March 31st 2010.

Over the past two and a half years, EMI Music has become a stronger and growing company, with a talented senior team, significant creative success and a more rigorous approach to marketing and operations. This has resulted in increased sales, improved market share and industry-leading EBITDA margins.

Charles said: “Elio has done a great job. I have thoroughly enjoyed working with him; he is a very talented executive and we all wish him well in the future. Our goals for EMI Music remain the same. I will support and guide the group’s strong team, keep EMI’s focus on creativity and superb A&R, and deliver a digital platform. This is a great business – our task is to ensure it has a great future.”

Elio added: “EMI is a wonderful business with a great team and new creative and operational momentum. My job here is now done and it is time for me to move on. It has been a pleasure to work with Charles and so many other talented and committed people. I look forward to seeing the company go on to further success in the future.”

And it turns out that people still care about John, Paul, et al.

EMI says it has sold a staggering 10 million copies of the band’s remastered albums since September. The total includes the giant box sets of the band’s work (if you bought the stereo set, that accounted for 14 albums in one purchase; if you went with the mono discs, that counted for 11), as well as downloads for the sort-of successful Beatles Rock Band game.

And, of course, nada from iTunes. Sidebar: If and when the band finally starts selling its music on Apple’s (AAPL) digital storefront, will there be anyone left to buy it?

But back to EMI, which has much more unpleasant news to deal with, namely that owner Terra Firma seems to be at the end of its rope. The private equity firm is now suing Citibank (C), which lent it the billions it needed to buy the music company in 2007, for fraud.

And Terra Firma is reportedly looking for investors to lend it another $1.6 billion to keep the company afloat, in large part because it fears it will default on the money it has already borrowed from Citi.

The conventional wisdom, meanwhile, is that all of this is simply a precursor to an eventual combination between EMI and Warner Music Group (WMG)–a deal the two companies have been trying to pull off for close to a decade.

Terra Firma’s complaint, via the New York Times’s Dealbook, makes for fascinating reading, in large part because of the cognitive dissonance created by Terra Firma’s description of itself.

The company describes itself as a clueless investor duped by Citigroup into buying the music company in an auction with no other bidders and as a savvy manager that has turned around the ailing music company.

Can both descriptions be true?

Terra Firma’s Lawsuit Against Citi Over EMI

(Also, some free fact-checking for Terra Firma’s attorneys: The iTunes Store launched in 2003, not 2005.)

Quirk’s tale revolves around his quest to find out how much his band earned from three albums’ worth of digital music over a five-year stretch. Warner Music Group (WMG) initially tells him that his band, which enjoyed very modest success through the 80s and 90s, has earned a grand total of…$62.47.

After some prodding, Quirk eventually gets Warner to concede that the band generated more than that paltry sum. But it’s still not likely to be that much.

Again, you’ll want to read it yourself, but there are two points here:

• It is much more difficult than it ought to be for digital content creators and owners to figure out how much money they’ve made online. Quirk, who works for a digital music distributor himself, lays much of the blame on the labels. But in their defense, I’ve heard many label types complain that they’re at the mercy of the likes of Rhapsody and Apple (AAPL). Remember that iTunes has been selling music since 2003. If digital music is still this knotty to navigate, think of how difficult, say, figuring out an actor’s residual for a video download is going to be.
• At least under conventional contracts, digital really isn’t going to amount to much for most performers. Maybe Lady Gaga really did make more than $167 after generating more than one million plays on Spotify, but she’s not going to make a ton, because streaming music royalties are really, really tiny. And given that streaming music start-ups are struggling to pay even that much, this is not going to change for quite some time.

(Thanks to Professor Derek Nystrom for flagging this one for me.)

Turns out Google (GOOG) CEO Eric Schmidt isn’t quite sure himself.

But posed with that question during a Boston news conference yesterday, Schmidt did use the opportunity to expound on the difference between pro bloggers and amateur ones. Or at least, his vision of the difference.

From Nieman Journalism Lab blogger Zachary Seward’s transcript of his exchange with Schmidt:

Me: A very small question. Google News very recently added a label for blogs, to differentiate from non-blogs. It seemed weird in 2009 to make that distinction. I wondered, did you have any input on that or –?

Eric Schmidt: I was not directly involved in that. There seems to be a difference between blogs and traditional news. It’s sometimes hard to distinguish because many people in the traditional news are also bloggers.

Me: Or they use a blog platform.

Schmidt: Or they use a blog platform. So we’re trying to find that line. And it’s hard to articulate what that difference is.

Me: How would describe that line if it’s not based on the tech behind the publishing platform?

Schmidt: No, it’s not the technology. My guess is–again, I’m speculating, which is always a mistake–it has a lot to do with the infrastructure around the writer. So a blog that’s associated with a major, legitimate organization–of which, I think, the majority, if not everyone, in the room is associated with–would be, I think, treated differently than an individual blogger who’s using his or her right of free expression to say whatever he thinks. So the presence of an editor, as an example. You know, an editor that’s not your mom.

As Seward points out, Schmidt is wrong about the way Google News categorizes. As best I can tell, Google basically lumps all blogs, including this one, which I like to think of as reasonably professional, in its “blog” category. And no, despite her occasional appearances on this site, Kara Swisher’s mother is not an editor here.

Anyway, the real question for me isn’t “how does Google refer to my work in its search results?” but “how does Google determine where to put my my work in its search results?” Schmidt and company can call it whatever they want–just send those eyeballs my way.

[image credit: kevindooley]

Microsoft’s MSN is in preliminary talks with MySpace about using the social networking site’s music service, MySpace Music, to help power music offerings on the giant portal.

While sources at both companies cautioned that the talks are still early, Microsoft (MSFT)–which has its own music site that it programs with original and partnered content–execs are interested in goosing it.

That’s because MSN Music consistently ranks substantially lower than other big online music properties in terms of traffic, while MySpace Music is always near the top.

Sources said Microsoft execs don’t think they can do as good a job as MySpace is doing and don’t see the point in striking needed but complex deals with music labels, which the News Corp. (NWS) property already has.

In an April report by comScore (SCOR), for example, MySpace Music was No. 2, just behind AOL Music, with 27.4 million unique monthly visitors. MSN Music was No. 6 with just 7.4 million.

Nonetheless, music is an area MSN cannot lag so badly in, given that entertainment is one of the key categories it is focusing on as it preps for a major renovation of the portal.

As BoomTown wrote in mid-July about a wide variety of changes coming to MSN:

MSN, Microsoft’s online portal, is also preparing a major redo of what U.S. and, possibly, international consumers will see, as it doubles down on five key content verticals, while cutting back on others.

In a new focus that will start to be apparent in the next month, MSN will heavily add to its News, Sports, Finance, Lifestyle and Entertainment offerings, weaving more data from [its search service] Bing into the mix.

“It’s a decision to make it so MSN does less better,” said one source close to the situation. “So there will be a focus of attention on a smaller number of categories in which we can be either #1 or #2 in, rather than #4 or #5.”

It is not clear exactly what the financial terms would be in any tie-up between MSN and MySpace, which could include licensing of content and other services related to music.

But such a deal is not unusual–MSN’s sports site is powered by Fox Sports, which is another News Corp. property.

And such a partnership would also key into concepts that MySpace CEO Owen Van Natta outlined in a recent interview onstage at the Web 2.0 conference.

Key among them was boosting music and entertainment overall and making them the prime focus in the site’s efforts at reinvigorating itself, as well as expanding distribution of MySpace.

In fact, MySpace recently bought social music service iLike to expand its distribution all over the Web, for example–including on Facebook, the longtime social networking rival from which MySpace is now trying mightily to differentiate itself.

In his appearance, Van Natta also unveiled a music video hub, the ability by users to buy music using Apple (AAPL) iTunes, and a set of better analytical tools–called MySpace Music Artist Dashboard–to help artists figure out how to best work with fans.

But MySpace needs more than these, and a link with Microsoft would provide it with a traffic gusher, since MSN’s main page remains one of the most trafficked sites on the Web.

If such a distribution partnership were struck, it would also raise the question of what will happen regarding MySpace’s negotiations with Google (GOOG) over renewal of their search deal, which expires next summer.

Dissatisfaction over the pricey three-year deal has been expressed by both sides; their mutual grumbling is one of the biggest open secrets in Silicon Valley.

Doing a search deal with Bing is the obvious and only alternative, although few expect any agreement to be as rich as the one MySpace did with Google in 2006 for $900 million.

Interestingly, it was recently reported that both Google and Facebook were bolstering music search and sales offerings, and Google’s apparently includes the use of the iLike player.

In other words: This could get really complicated.

Execs at both MySpace and Microsoft I reached out to declined to comment.

(Full disclosure: News Corp. owns Dow Jones, which owns this site.)

This one isn’t a total shock, as EMI and Grooveshark had supposedly been close to a deal prior to the lawsuit. And it wouldn’t be the first time that a label sued a Web company: See Warner Music Group (WMG) and Imeem, as well as Universal Music Group and News Corp.’s (NWS) MySpace, among others.

No details on the deal from EMI or Florida-based Grooveshark, which offers free streaming music, a la MySpace Music, Imeem, Spotify and others. Unlike those services, though, Grooveshark doesn’t appear to have licensing deals with three of the big four labels and plays their music anyway. But with the exception of the EMI suit, it has remained unmolested. Interesting.

For the record, here’s the release (Inside baseball note to Grooveshark guys: Please don’t attach press releases as PDF files. Really cumbersome. Thanks.):

Music streaming service Grooveshark signs deal with EMI Music and EMI Music Publishing
Gainesville, FL–Today, digital music service Grooveshark.com announced it has entered into agreements with major label EMI Music and EMI Music Publishing that will give Grooveshark users access to content from EMI’s roster of current and legendary catalog artists and EMI Music Publishing’s songwriters.

Grooveshark offers music fans the ability to stream songs for no fee from a vast catalog of music. Fans can enjoy Grooveshark’s music without having to download client software or register. The basic service is free to fans and supported by visual advertising. Fans who opt for a $3 per month premium service can enjoy unlimited ad-free streaming music. The site was recently named the best way to listen to music on the web by Rolling Stone, and just surpassed one million registered users.

“EMI Music and EMI Music Publishing have collaborated with us to create a mutually sustainable deal which represents the future of digital music,” says Grooveshark CEO Sam Tarantino. “We will continue to deliver the best music service on the Internet to our users, and we will expand our capacity to strengthen fan-to-artist connections through our technology.”

“We think services like Grooveshark offer great music discovery options for fans,” said Mark Piibe, EMI Music’s Global Head of Digital Business Development. ”In turn, Grooveshark offers a new revenue stream for our artists and will help us learn more about how we can better connect different types of fans with artists.”

Via Reuters/Billboard:

Guns N’ Roses and Universal Music Group’s Interscope-Geffen A&M label were sued by British label Independiente and the U.S. arm of Domino Recording Company, who own the licensing rights to songs by German electronic musician Ulrich Schnauss.

Singer Axl Rose and Guns N’ Roses band members and album producers copied portions of two of Schnauss songs–”Wherever You Are” and “A Strangely Isolated Place”–for a song used on the band’s last album called “Riad N’ the Bedouins,” according to the lawsuit.

The lawsuit, filed on Friday but made available on Monday, seeks $1 million in damages. A spokesperson for Interscope-Geffen A&M, owned by Vivendi’s Universal Music Group, was not available for comment.

You might have thought the labels suing the band and Universal Music would have done so last fall, when there was a biggish to-do about the album and when the band and Universal Music were siccing the federal government on bloggers who posted links to unauthorized MP3s from the album.

Anyway, it’s another good opportunity to remind the young people of today why the young people of 20 years ago were really into Guns N’ Roses: They used to be great!

Also, I am still trying to track down a recording of any of the songs from the Axl Rose-inspired “White Trash Wins Lotto,” the best musical I’ve ever seen (the version I saw featured a pre-“Ratatouille” Patton Oswalt, I think). Any help greatly appreciated…

There’s no question that Spotify is the latest hot start-up of the moment, which would be super annoying to BoomTown–who is easily irked by never-ending froth around Web 2.0 companies–if co-founder Daniel Ek were not so sharp and the digital-music-on-demand service he created not so nifty.

But, indeed, Ek turned out to be a very refreshing and level-headed serial entrepreneur in an interview I had with him yesterday in London, where Spotify has an office.

While Spotify is only available in certain countries in Europe, Ek promises it will soon come to the U.S., presumably when he finishes negotiating with the major music labels–which all reportedly hold stakes in Spotify.

They would like it, given that Spotify is essentially a kind of not-iTunes, a label-friendlier version of the popular music-downloading software and service from Apple (AAPL).

So, it is probably likely Spotify will get the green light for its American invasion, especially given its strong performance in under a year, with several million users, mostly in the U.K., as well as Germany and Sweden.

Those consumers seem to like the simple and light software application that lets one find and play a terrific range of music instantly. (Spotify also recently released an iPhone app for mobile users.)

The innovative service is somewhat social and too light on recommendations, but the true appeal is the quick ability to build an eclectic online music library and discover new songs without having to spend a lot buying tracks.

Those who pay a monthly fee get those millions of songs without advertising, while those who use the free version get banner and audio ads. Spotify also makes money from users downloading songs and by spurring physical sales.

While it is still unclear if all this adds up to a big business–the online music business has been notoriously deadly to start-ups–investors have pumped tens of millions of dollars and given Spotify an alleged $250 million.

The start-up has also attracted the attention of U.S. Web hotshots, including Facebook founder and CEO Mark Zuckerberg, who complimented it on his status update recently.

Other big companies are also likely to take a look-see at Spotify for acquisition.

The 26-year-old Ek insists he is intent on building a huge standalone business. Famous last words, of course, but he talks a good game, as you can see in this video interview:

]]> http://allthingsd.com/20090922/is-spotify-spot-on-co-founder-daniel-ek-talks-about-the-hot-online-music-start-up/feed/ 1 http://allthingsd.com/20090914/universal-music-gets-slapped-in-court-what-does-that-mean-for-veoh-and-youtube/ http://allthingsd.com/20090914/universal-music-gets-slapped-in-court-what-does-that-mean-for-veoh-and-youtube/#comments Tue, 15 Sep 2009 05:03:40 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=10935 Just how big a deal was a federal judge’s ruling Monday in the copyright-infringement fight between Veoh and Universal Music Group?

Depends on who you ask, of course.

Executives at Veoh say Judge A. Howard Matz has given them a new lease on life, and at least some of the company’s investors are doing some chest-beating. Universal, the world’s largest music label, says it’s confident it will win an appeal.

You can get the same split opinion by asking two different companies that happen to be locked in a similar fight. Executives at Google’s (GOOG) YouTube, which is trying to fend off a copyright suit filed by Viacom (VIA), say the Veoh ruling bolsters their case. You can guess what Viacom says.

The gist of the fight: Universal says Veoh didn’t try hard enough to keep illegally uploaded material off the video site; Veoh says it made a good-faith effort. Matz agreed with Veoh and tossed out Universal’s claims.

Even if you disregard the posturing, it’s fair to say there’s a genuine debate over the ruling’s meaning. Veoh, along with some of my bloggy colleagues, is treating the decision as the final word on Web copyright disputes, or at least those that involve the Digital Millennium Copyright Act.

And Matz certainly slapped Universal around. But it’s worth noting that copyright owners have lost Web cases in the Ninth District before, but ultimately won on appeal. Ask Grokster, the now-defunct file-sharing network that dissolved after a 2005 Supreme Court ruling.

You can read all of Matz’s judgment at the bottom of this post. But this excerpt, in which he argues that simply having illegal material on your site isn’t a crime, and neither is knowing about it (at least, in a general sense), gives you a good idea of Matz’s thrust and tone:

No doubt it is common knowledge that most websites that allow users to contribute material contain infringing items. If such general awareness were enough to raise a “red flag,” the DMCA safe harbor would not serve its purpose of “facilitat[ing] the robust development and world-wide expansion of electronic commerce, communications, research, development, and education in the digital age,” and “balanc[ing] the interests of content owners, on-line and other service providers, and information users in a way that will foster the continued development of electronic commerce and the growth of the Internet.”

Legal debate aside, the ruling does give a practical benefit for Veoh. It allows the company to fetch a higher price on the auction block.

CEO Dmitry Shapiro has been shopping the site to bidders over the summer, and as of a few months ago, he was willing to accept less than the $70 million investors like Time Warner (TWX), Goldman Sachs (GS) and former Disney (DIS) CEO Michael Eisner have poured into the site.

Selling a Web video site in 2009 is a tough challenge without a handicap, but the lawsuit was a big one. It was a huge time-and-money suck–Veoh may have spent as much as $6 million fighting the case in the last two years–and more important, the unresolved case was a huge liability. Who wants to buy a lawsuit?

Now, Shapiro says, Veoh’s options include not selling at all. He insists that some of Veoh’s existing backers are willing to recapitalize the company and that new investors might join in as well.

I’ll take him at his word, but if I had to bet, I’d wager that Veoh ends up getting acquired sooner than later. Maybe quite soon–the company has a board meeting today.

Wonder what they’ll talk about?

VEOH –

Still here? How about that? You get a bonus video! (But be warned: Pacino chews up a lot of scenery here, and there is some impassioned cursing.)

]]> http://allthingsd.com/20090914/universal-music-gets-slapped-in-court-what-does-that-mean-for-veoh-and-youtube/feed/ 0 http://allthingsd.com/20090817/sale-of-ilike-to-myspace-135-million-in-cash-6-million-for-talent-retention-delayed-over-tax-issues-reallyplus-the-list-of-other-suitors/ http://allthingsd.com/20090817/sale-of-ilike-to-myspace-135-million-in-cash-6-million-for-talent-retention-delayed-over-tax-issues-reallyplus-the-list-of-other-suitors/#comments Tue, 18 Aug 2009 06:25:06 +0000 Kara Swisher http://kara.allthingsd.com/?p=17756

The board of iLike planned a meeting earlier tonight to go over a buyout offer by MySpace, several sources close to the situation said. But it was suddenly canceled because of some thorny tax implications related to the talent-retention part of the deal to purchase the social music start-up.

This does not mean the pending acquisition is in jeopardy, sources said, and it could be on track to be signed as early as today, barring any more complications.

That is what both iLike and MySpace execs are hoping, said sources, one of whom described the outstanding issues as a “technicality.”

What’s also been unclear is the actual price the social networking giant is paying for iLike, which has been reported as about $20 million.

In fact, only $13.5 million will be paid upfront in cash, with about $8 million of that money likely going to one of its major shareholders, Ticketmaster Entertainment (TKTM), due to its preferred shares.

Another $6 million has been promised by MySpace in forward payments to retain some key employees–including iLike co-founders and twin brothers Ali and Hadi Partovi.

Although those employees can remain in Seattle, where iLike has its HQ, they must stay employed at Beverly Hills, Calif.-based MySpace for two and a half years to get their money.

It’s that talent part of the deal that caused the Partovis to cancel the iLike board meeting, which they explained to key investors was necessary due to some confusion over how the money paid to these employees would be taxed.

A person briefed on the issue said that if it was taxed as compensation, it would have a much higher tax rate than if it were considered long-term capital gains.

The Partovis said in the email that they were working on the problem with their advisers on the sale, Allen & Co., as well as with lawyers and accountants.

Tax snafus in the middle of a sale are not exactly the way the entrepreneurial Partovis envisioned it was going to go for iLike (see my various video interview related to iLike below) when they created the compelling music sharing and recommendation service in 2006.

After only a few years, the innovative start-up claims it has 50 million registered users overall.

A lot of that growth was due to iLike quickly becoming one of the most popular widgets on social networking sites like Facebook, where it has also been the top music application, with 10 million active monthly users.

The Partovis–who once were close with execs at Facebook (see my party video below), particularly founder and CEO Mark Zuckerberg–placed great faith in its growth lifting all Web 2.0 boats.

It did not turn out that way, though, especially from the important financial point of view, and iLike scrambled to diversify.

The iLike service recently began offering a music downloading service, for example, as well as other such features, all of which would be attractive to the music-centric focus at MySpace.

Once an Internet sensation, MySpace has been struggling to restructure itself after losing momentum and buzz in recent years, as well as a huge advertising revenue drop in its most recent quarter.

Its owner, News Corp. (NWS), replaced its founders with new management four months ago, including former Facebook exec Owen Van Natta as CEO.

After making major staff layoffs and rejiggering management, Van Natta and his new team have been working on an overhaul of the MySpace product and seem to be refocusing it to become a global music and entertainment service.

MySpace also has a joint venture with major music labels, MySpace Music, which has been trying to attract consumers and build a viable business. Sources said MySpace Music could also buy into the iLike deal or simply license its technology to improve its features.

Thus, purchasing iLike would fit in well with MySpace’s overall plans.

And iLike has also been in need of a fix itself.

For all its popularity, especially on Facebook, it has moved slowly toward profitabilty, and its $17 million in funding has been dwindling, as has its viability as a standalone company.

Back in more frothy Web 2.0 days, iLike’s generous funding gave it a valuation of more than $50 million, which has also lost steam over time and as the economy has worsened.

In the last quarter of fiscal 2008, for example, Ticketmaster wrote down its $13 million investment by $6 million.

Tensions between its execs and iLike have gotten worse over time, although some thought at one time that Ticketmaster would buy iLike.

No longer, which is why the founders turned to Allen & Co., as MediaMemo reported as far back as November, to find another big investor or buyer.

Wrote Peter Kafka: “Delivering free music on the Web has so far proven to be a high-cost, low-revenue endeavor…”

So, the New York deal-making firm ginned up a small group of suitors, which included Facebook, Activision Blizzard (ATVI) and Microsoft (MSFT), as well as MySpace.

Of the three, Activision was most serious, with interest in integrating iLike’s community and technology tools with its Guitar Hero franchise.

But Activision never actually made a formal bid, said sources.

Both Microsoft and Facebook also considered the purchase, but sources said they would only offer stock in a deal. But iLike wanted cash in the deal.

The Partovis were also was wary about working at either place.

Both Partovis, for example, had worked at Microsoft (Ali after selling it LinkExchange in 1998 for $265 million; Hadi several times, once following Microsoft’s acquisition of Tellme Networks, which he co-founded).

As it has turned out, in its short life, iLike’s last, best alternative is apparently MySpace.

“Look, iLike has been shopped around for a while, and while the team and technology are great, it only has one choice and that’s to be sold,” said one person involved in the various scenarios. “The question for the buyer then is whether it was worth it to pay up or just move on and do it ourselves.”

So until the bean counters settle this IRS nightmare, here is my video interview with Hadi Partovi about a year ago at iLike’s HQ in the Capitol Hill section of Seattle, when times were a little more hopeful:

And here is a very dark and very shaky video I did when iLike threw a fete in Silicon Valley to celebrate its start-up two years ago and to send some appreciation in Facebook’s direction–it is so dated that Facebook COO Sheryl Sandberg, who is in the video, is still at Google (GOOG).

(Full Disclosure: News Corp. also owns Dow Jones, which owns this site.)

]]> http://allthingsd.com/20090817/sale-of-ilike-to-myspace-135-million-in-cash-6-million-for-talent-retention-delayed-over-tax-issues-reallyplus-the-list-of-other-suitors/feed/ 4 http://allthingsd.com/20090629/big-music-label-foe-lime-wires-newest-executive-a-big-music-label-veteran/ http://allthingsd.com/20090629/big-music-label-foe-lime-wires-newest-executive-a-big-music-label-veteran/#comments Mon, 29 Jun 2009 18:40:27 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=8746 What do you do when your job working for a big music label disappears? You go to work for a pirate-friendly file-sharing service that’s being sued by the big music labels.

That’s the path that Jason Herskowitz has chosen. Old job: VP of product management at Total Music, Universal Music and Sony’s (SNE) attempt to create a service that offered either free downloads or free streaming music as a way to combat file-sharing. It collapsed earlier this year and Project Playlist bought some of its parts.

New job: VP of product management at LimeWire, one of the last (one of the only?) high-profile peer-to-peer file-sharing companies based in the U.S. Not surprisingly, the service was embroiled with industry lawsuits for three years running.

Here’s Herskowitz’s blog post announcing his new job and his pending move to Brooklyn (Welcome, Jason! Pretty sure we’re neighbors.) from Washington D.C. It’s not a crazy career move: A job is a job and there aren’t that many in digital music these days. Besides, I hear that LimeWire has nice offices.

Which reminds me: How is it, exactly, that LimeWire stays afloat when the labels have been able to force so many of its peers to shut down? Good question. I’ve asked around and heard murmurings that the labels and the file-sharing service may be able to work out some kind of agreement, but I’ve heard that every 12 months or so. So I’ll believe it in when I see it.

In the meantime, LimeWire continues to allow you to download just about any song (and many other things) you can imagine over the Web for free, without paying anyone a cent. Though if you do try to download a copyrighted song, you do get this stern warning from the service. I take it in the same spirit as the warnings head shops give you when they say the bong they’re selling is for tobacco use only (click to enlarge):

]]> http://allthingsd.com/20090629/big-music-label-foe-lime-wires-newest-executive-a-big-music-label-veteran/feed/ 0