The service is laying off the majority of its employees, and CEO Mike Volpi (pictured right) is out, replaced by Matt Zelesko, who had been SVP of engineering. The Joost.com portal site will stay open, but best to think of it as an ad for the company’s hosting and distribution services, which it will try to sell to cable companies and the like.

A Joost spokesperson declined to say how deep the layoffs will be; but I’m told that the company, which had more than 100 employees last fall, will be down to a couple dozen after the cuts are done. In a post on Joost’s Web site, Volpi said the company “will say goodbye to many of our colleagues and friends.”

This isn’t a shock: Joost’s fate has been the subject of whisper and rumors for the last year or more. The service made an initial splash in 2007 by raising $45 million from the founders of Skype and an array of high-profile investors and media companies, including Sequoia Capital and Viacom (VIA), and was initially supposed to deliver copyrighted content via a peer-to-peer distribution system and a player that users downloaded to their desktops.

But YouTube, and later Hulu, conditioned users to watch video via their browsers, and Joost’s software never caught on. By last fall, the company had retooled and began offering video via the browser like everyone else, but it has never been able to generate a significant audience. In November, a month after the company launched its Web browser, it said it was attracting 2.1 million unique users world-wide, a fraction of YouTube’s audience, and well behind rivals like Hulu, MetaCafe, Veoh and DailyMotion.

Here’s the service’s unique visitor count, per Comscore (SCOR); Joost’s unique viewer count, which is the more relevant metric for video sites, is considerably smaller (click to enlarge):

Joost has been a frequent candidate for buyout rumors, and the company hasn’t gone out of its way to deny them. The supposed buyers would be cable companies like Comcast (CMCSA) Time Warner Cable (TWC) or telcos like AT&T (T) and Verizon (VZ), which would presumably use Joost’s technical team to help build out their own Web video plays.

But some of the cable guys and telcos insist that they’re fine with the people they have. And if they do want to buy a video player, they have plenty of options: Just about all of Joost’s peers have been on the block, formally or informally, for the past few months.

JOOST TO PROVIDE WHITE LABEL ONLINE VIDEO PLATFORM

NEW YORK AND LONDON – June 30, 2009 – Joost, the online video startup, announced today that, along with Joost.com, it will focus on providing white label online video platforms for media companies, including cable and satellite providers, broadcasters and video aggregators. This technology and service offering will support content owners’ efforts to build comprehensive branded environments online.

Media companies around the world are embracing internet-based video portals as a key path to distribute their premium video, but building a world-class video portal is increasingly difficult and expensive. Joost will focus on this issue and provide the market with a cost-effective, end-to-end solution for media companies to publish video under their own brands.

As a part of this new direction, Joost will reorganize and restructure its business. A core team in New York and London will work on providing these solutions, as well as operating and supporting Joost.com and its associated video applications. Joost also will wind down operations in its Leiden development center.

Matt Zelesko, currently SVP of Engineering at Joost, will take over as CEO while continuing to lead the engineering organization. Stacey Seltzer, currently SVP of international business development and content acquisition at Joost, will run the business operations. Mike Volpi has stepped down as CEO of Joost but will remain actively involved as Chairman of the Board.

Joost plans to make its white label video platform commercially available to media companies around the world. This offering will provide a solution for companies looking to build a branded experience for their content on their own site as well as other sites and platforms in their distribution networks.

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):

Digital music start-ups seem to come in two flavors these days: Those being sued by the major music labels and those with expensive licensing deals they can’t afford.

But for some reason, plucky Grooveshark, which runs a very nice, free streaming music service, has stayed out of both of those buckets until now. I’ve confirmed that EMI Music Group is suing the site–whose motto is “Play any song in the world, for free!”–for copyright violation.

The label filed suit against Gainesville, Fla.-based Grooveshark in a New York court on May 8. I don’t have a copy of the complaint yet, but if you feel like sharing, hit me at peter@allthingsd.com or use the blind tip box here. No comment from EMI, but Grooveshark sent me a very long statement, which I’ve printed at the bottom of the post.

The takeaway: Grooveshark says it was working on a licensing deal with EMI and now finds itself in court instead. The company does refer to deals with “many artists, labels and publishers,” but as far as I can tell, it doesn’t have deals with any of the other three majors–Warner Music Group (WMG), Universal Music Group, or Sony (SNE)–either.

Grooveshark started out as a peer-to-peer file-sharing start-up in 2006, and has since morphed into a streaming model. When I talked to marketing VP Joshua Bonnain in May, he told me the company was primarily funded by friends and family–most of the company’s employees are either students at or graduates of the University of Florida, he said. But he also said the company had received a “substantial investment from a large party” that he wouldn’t identify.

Bonnain said the site, which generates at least some ad revenue, planned on splitting half of it with the copyright owners of the music it played. But I was never clear about how that was going to work since Grooveshark doesn’t have deals with the majors. Then again, Bonnain didn’t tell me that the company had been sued a few days before we talked, either.

In the music world, negotiations don’t preclude suits and vice versa; Warner was, at one point, suing iMeem, but then became an investor in the site. Same thing with Universal and News Corp.’s (NWS) MySpace. The only real question I’ve had is why the big guys haven’t gone after Grooveshark yet. I’ve been asking label folks about the start-up since November and I’ve only gotten shrugs for an answer.

Anyway, as I said, it’s very nice service, and it would be a shame if the labels can’t figure out a way to work with it or help it survive. But the odds of that happening, based on the unpleasant history of digital music start-ups to date, are very low. So enjoy this themed playlist I created with the site’s help, which features music from all four majors, while you can. Grooveshark’s statement is below.

For the past year, Grooveshark has been in talks with EMI Records and other copyright holders to negotiate licensing agreements for the use of their content. We are pleased to announce that over the past few months Grooveshark successfully concluded mutually bene?cial agreements with many artists, labels, and publishers that we hope to be a template for other such agreements with additional copyright holders.

Recently, EMI Records chose to abandon the template we’ve built with the help of other major copyright holders and opted for their traditional intimidation tactic of ?ling a lawsuit as a negotiating tool. We ?nd the use of this negotiating strategy counterproductive, as Grooveshark has been willing to conclude an agreement with EMI Records that is economically sustainable for both EMI Records and a start-up company the size of Grooveshark.

Grooveshark is run by a group of young and passionate musicians. We love music, we make music, and we believe that the use of all music should be paid for. We adopted this core philosophy at our inception and to date have concluded agreements with hundreds of record labels, major US performance rights organizations, and thousands of independent artists who support Grooveshark’s business model. (See: Grooveshark Artists)

As musicians, we support the rights of copyright holders and strive to sign sustainable agreements with all content owners, ensuring that all artists get paid– or we agree to remove content from our system in accordance with our DMCA Takedown Policy. We hope that EMI Records eventually follows the lead of the many forward-thinking labels we are already working with, who would rather get their artists exposure and a fair share of our revenue than block content access and force customers to illegal networks.

We understand that the economy of the digital music business is in a state of ?ux, and we hope to help ease this transition by providing the required new tools and services that lead to the next generation of the music industry. We respect the ownership rights of the major labels and publishers, and our core mission has always been to compete with piracy by offering a service that is genuinely better than what illegal networks offer, while also ensuring fair payment to copyright holders. Our next important step on our road to success is to conclude a mutually bene?cial agreement with EMI Records that is sustainable for both EMI and Grooveshark.

“The amount being paid to the music industry, even though their games are entirely dependent on the content we own and control, is far too small,” Bronfman said during an earnings call today. “There is what I would call a very paltry licensing fee per song. … I think the industry as a whole needs to take a very different look at this business and participate more fully and in a much more partnership way. And if that does not become the case, as far as Warner Music is concerned, we will not license to those games.”

Leaving aside, for a moment, the question of why Warner (WMG) agreed to a royalty scheme it apparently finds unappealing, you’ve got to wonder why the company persists in lambasting these new media that so obviously invigorate the industry and promote its music. And beyond that, you’ve got to wonder why Warner is doing it at a time when games like Guitar Hero and Rock Star are clearly becoming viable distribution outlets.

Of course, we already know the answer. Bronfman himself gave it to us in a speech last year. “We used to fool ourselves,” he said. “We used to think our content was perfect just exactly as it was. We expected our business would remain blissfully unaffected even as the world of interactivity, constant connection and file sharing was exploding. And of course we were wrong. How were we wrong? By standing still or moving at a glacial pace, we inadvertently went to war with consumers by denying them what they wanted and could otherwise find, and as a result, of course, consumers won.”

“The amount being paid to the music industry, even though their games are entirely dependent on the content we own and control, is far too small,” Bronfman said during an earnings call today. “There is what I would call a very paltry licensing fee per song. … I think the industry as a whole needs to take a very different look at this business and participate more fully and in a much more partnership way. And if that does not become the case, as far as Warner Music is concerned, we will not license to those games.”

Leaving aside, for a moment, the question of why Warner (WMG) agreed to a royalty scheme it apparently finds unappealing, you’ve got to wonder why the company persists in lambasting these new media that so obviously invigorate the industry and promote its music. And beyond that, you’ve got to wonder why Warner is doing it at a time when games like Guitar Hero and Rock Star are clearly becoming viable distribution outlets.

Of course, we already know the answer. Bronfman himself gave it to us in a speech last year. “We used to fool ourselves,” he said. “We used to think our content was perfect just exactly as it was. We expected our business would remain blissfully unaffected even as the world of interactivity, constant connection and file sharing was exploding. And of course we were wrong. How were we wrong? By standing still or moving at a glacial pace, we inadvertently went to war with consumers by denying them what they wanted and could otherwise find, and as a result, of course, consumers won.”

And 80% would pay for a legal subscription-based music service that would allow them to discover, swap and recommend music.

Which, if true, illustrates the great disparity between the consumer and industry views of digital music. Because according to the Hertfordshire study, consumers–at least those in this particular age group–view digital music on the Internet as a sort of giant mixed tape to be explored and shared. They don’t have much of an emotional connection with it: “Respondents seem to attach a hierarchy of value to different formats of music, with streaming-on-demand the least valuable (though still valued); ownership of digital files somewhere in the middle; and ownership of the original physical CD the most valuable.”

The recording industry, of course, has failed to recognize that hierarchy. When, and if, it does, the study notes, it may finally succeed in monetizing that mixed-tape ethos that’s befuddled it for so long. “Survey responses suggest that respondents would continue to purchase CDs and go to gigs, even if they subscribed to a legitimate peer-to-peer file-sharing service,” the survey adds. “Fans want to support or pay tribute to their favorite artists and ownership of a digital music file does not necessarily do justice to their sense of devotion.”

But how much is too much when it comes to shelling out a little more for convenience, and are you really getting what you pay for? This week, I tested what could be thought of as the ultimate convenience: a box that plugs into your television and Internet connection, letting you download movies whenever you want to watch them. The box costs $399 and doesn’t include the price of movies, which must be rented or purchased for fees as high as $4 or $20 each, respectively.

This box, called Vudu, comes from a Silicon Valley company of the same name (www.vudu.com). Vudu’s biggest strengths are its easy setup, good picture quality and simple user interface, easily navigated using a scroll-wheel remote control.

Vudu costs $399 plus prices to rent or own each movie title.

If the director yelled “Cut!” right here, Vudu would be a box-office smash. But actually using this device is just one problem after another. For starters, though Vudu says it has relationships with the major Hollywood studios, many of the 5,000 titles it offers don’t seem to be popular by mainstream standards. Lots of them are old or obscure. For instance, you won’t find any of the “Pirates of the Caribbean” movies, but how about a 1984 sci-fi/fantasy movie called “The Ice Pirates,” instead?

If you do find a movie that you’d like to watch, you must have a bandwidth speed of at least two megabits per second to download it instantly; millions of broadband homes have slower connections than that. Vudu offers to measure your bandwidth on its home page before you buy it. I tested Vudu for a week on a typical home-type DSL line, and my connection only clocks about 1.5 Mbps, so it took me about 45 minutes to download each movie.

While Vudu’s $399 price tag might take some getting used to, its fees for buying or renting each movie could be harder to swallow after a month’s worth of use: as much as $80 if you bought one top-tier movie a week. Worse, you have to pay in advance. Rather than charging your credit card on a pay-as-you-go basis, Vudu customers must choose a $20, $50 or $100 amount at setup from which movie fees are deducted. When your account hits $0, the amount selected at setup is charged and the debit process begins again.

On top of all this, Vudu relies on a peer-to-peer network system for faster downloading. So, essentially, this company is using your bandwidth to help it save money it would have otherwise spent on its own servers and bandwidth.

I set up Vudu in a snap, plugging it into three things: a wall outlet, the back of a high-definition Sony Bravia television and an Ethernet cord. Wireless connections won’t work with Vudu without a special “bridge” or a power-line adapter. Once Vudu turned on, a friendly voice guided me through setting it up, and I got started in minutes.

Vudu’s home screen is broken down into five menus: Find Movies, New Releases, My Movies, My Wish List and Info & Settings. I used the tiny remote, which fits perfectly in a hand, and rolled through menus using its scroll wheel. This wheel can be pressed down to select something, saving me from glancing down at the buttons. Also, Vudu uses an RF (radio frequency) antenna so you don’t have to point the remote at it.

In Find Movies, I looked through 18 genres, including biography, romance, family and historical. A sorting feature can filter movies by release date, MPAA rating, critics’ rating, studio, availability to rent and availability to own. An on-screen alphabet can be used to type in names of actors, directors or movie titles; the scroll wheel speeds up this process.

Parental controls, which are only accessible with a special code, can be set to block a child from buying or renting movies with certain ratings.

Vudu likes to think of itself as the instant-gratification alternative to running to the video store. But not many people I know still go to Blockbuster for a DVD; instead, they use mail-delivery services like Netflix. Compared with the 85,000 titles offered by Netflix, the selection at Vudu is pretty slim. A more similar comparison might be Amazon’s Unbox for TiVo, which has slightly less than 5,000 movies.

Though I couldn’t find numerous titles, I did discover plenty of movies I’d never heard of. A search for last year’s “Casino Royale” returned Robert DeNiro’s “Casino” from 1995, as well as two Asian films, “Casino Tycoon” and “Casino Tycoon II.” Since I never saw Helen Mirren’s “The Queen,” I tried to find her Oscar-winning performance on Vudu. But the closest I came to royalty were “Barbarella: Queen of the Galaxy,” an alternative name for the cheesy 1968 Jane Fonda sci-fi flick, and “Prom Queen,” which fell under the Gay and Lesbian category. I tried to laugh this off by watching Steve Carell’s “Evan Almighty.” But typing “E-V-A…” into a title search only returned “Deliver Us From Eva,” an R-rated 2003 comedy starring LL Cool J.

I searched and found the same three titles on Netflix, though Amazon Unbox only had “Evan Almighty.”

I downloaded two romantic comedies: “Music and Lyrics,” starring Hugh Grant, a $4 rental, and a Diane Keaton movie called “Because I Said So,” which I bought for $20. I also rented “Zodiac,” a suspense movie starring Jake Gyllenhaal, for $4. Movies that you own never expire, but rented flicks must be watched within 30 days and expire 24 hours after you start watching.

In the case of each movie, the original estimates for time to download were daunting; two started out by estimating “Available in a few hours” and one movie’s estimate read “Available in a few days.” But all three finished downloading in about 45 to 50 minutes. Only one movie can download at a time.

While watching movies, the remote’s scroll wheel can be used to fast forward or rewind scenes. Scrolling faster moves you farther ahead or back (the fastest jump moves you 30 minutes); the slowest scroll moves you ahead or back five seconds.

Vudu might cast a spell on users who don’t mind its poor selection and high-bandwidth requirement to deliver instant downloads. But for me, the convenience of Vudu is no convenience at all. As is, its lackluster selection, high prices and slow downloads make it more of a letdown than anything else.

Edited by Walter S. Mossberg

Email mossbergsolution@wsj.com