The music companies, Sony Corp.’s Sony Music Entertainment and Access Industries Inc.’s Warner Music Group, joined in an amended complaint to a suit filed last month by Vivendi SA’s Universal Music Group in U.S. District Court in Manhattan.

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No terms were disclosed. The settlement, in conjunction with an earlier deal struck with Sony’s Sony Music Entertainment (SNE), means that Project Playlist now has deals with two of the big four music labels. But Warner Music Group (WMG) and Vivendi’s Universal Music Group are still suing the company.

Just as important: Project Playlist hasn’t been reinstated by MySpace and Facebook, both of which booted the service off their social networks last November. Since Project Playlist depended on those sites to drive traffic to its site, it’s hard to see how it can gain much traction unless it can sweet-talk the two other labels into coming aboard.

My expectation was that a settlement was in the works last fall because that’s when former Facebook COO Owen Van Natta joined the company as CEO and investor Bob Pittman poured several millions of dollars into it. Neither of those men, I assumed, was betting on a prolonged lawsuit.

Project Playlist isn’t the only music start-up struggling these days–even those that haven’t been sued by the labels, or have deals with them or even investments from them, are trying to figure out how to survive. Most assumed they’d be able to make money via advertising, but that was a hard sell even before the recession/depression.

Still, better to have a deal than a lawsuit.

Preprepared quotes from both sides:

Van Natta: “It is crucial for us to continue connecting our users with more of their favorite music. This partnership will provide us with a wide-ranging selection of content to satisfy our users’ appetites to share and purchase music. We are excited to now have both EMI and SONY BMG Music catalogs available and we hope to continue to expand and enhance our service.”

Ronn Werre, EMI Music’s President, Music Services worldwide: “Making our music available on a fan favorite like Project Playlist is part of EMI Music’s mission to connect artists and fans and to give fans more ways to discover new artists. Project Playlist is becoming a fan favorite. Our artists also know that word-of-mouth among friends is a powerful part of music discovery.”

Try it yourself. Head to YouTube and look up an “official” clip from any of the big three labels that still put their stuff on YouTube–Vivendi’s Universal Music Group, EMI Music Group and Sony’s (SNE) Sony Music Entertainment. Inevitably, you’ll find the embedding code “has been disabled by request.” (This doesn’t apply to Warner Music Group (WMG), since that label’s stuff isn’t on YouTube at all anymore.)

This isn’t the end of the world. I can almost always find an unofficial clip that does the job. But why do I have to do that at all? Don’t the labels, and Google’s video site, want this stuff distributed as widely as possible–either because the clips can help them sell music or sell advertising?

I’ve asked both Google (GOOG) and the labels about this in the past and have never gotten a satisfactory answer. Essentially, both sides point the finger at each other. But yesterday an employee at one of the big labels tried to answer the question for me, via an email. His argument: Both the labels and YouTube are really collaborating on this one.

Meanwhile, he says, the fact that the labels would be much, much better off if they let people promote their products, for free, all over the Web isn’t lost on label employees themselves. Just not the ones that are cutting deals with YouTube.

Here’s his letter, sans identifying details. Below that: An excellent, and unofficial, Beatles clip.

I wanted to point out something that might explain the inability to embed [major label] videos outside of YouTube.

I work at a major label and I’ve been told informally that embedding is disabled on our label’s YouTube clips because the deal terms negotiated with YouTube on our first licensing deal a couple years back demanded such large advance and per-stream payments that YouTube could only come close to the ad rates required to satisfy the terms by selling the advertising around the video, and not just on in-video overlays. So in the negotiation, YouTube told us only way we could get the terms we asked for was to disable the embedding on our videos.

The decision not to compromise on terms so we could allow embedding has been really difficult to label employees in digital marketing and publicity. The digital business division is rewarded for bringing in big money from deals, but we at the labels are rewarded for realizing profits from breaking artists, and end up being constrained by many of those deals.

We would absolutely prefer the videos to be embeddable to increase the reach of our artists through blogs, MySpace pages, and now (this is a huge detriment, I think) through the YouTube video items on Facebook that people post to their walls.

Maybe it’s not a huge story, but it’s definitely more complex than “major labels are so protective of their content that they disable embedding.” It’s more a result of the complex incentives created by centralizing digital business deals in a division that is not at all responsible for music and marketing. It can be frustrating.

[Image credit: MoonSoleil]

The proposed deal, first reported in The Wall Street Journal and CNET, is in advanced stages. A person familiar with the negotiations say it’s “highly probable” that a pact can be hammered out, but says it could still take a month or more to finalize.

The gist: Google’s (GOOG) video site would help Vivendi’s music unit distribute videos on sites outside of YouTube. And YouTube would create a specialized portion of its existing site where Universal could hopefully sell more lucrative ads against its clips.

As of now, the discussions about the new site only involve UMG and YouTube, and the plan isn’t dependent on getting the other big labels to sign on, I’m told. But that doesn’t mean the other labels couldn’t be incorporated, and the site would obviously be more potent if the other guys were involved.

In December, Warner Music Group’s (WMG) videos started disappearing from the site after the company couldn’t reach a deal with YouTube; last month, Sony’s Sony Music Entertainment (SNE) renewed its existing deal to stay on the site.

The WSJ says talks about some kind of deal have been happening since last fall. But let me immodestly point out that I’ve been beating the drum for this deal–repeatedly–for a couple months.

Here’s my logic, which apparently sounds right to other folks: YouTube’s music videos are popular, and should be appealing to advertisers. But right now they’re money-losers for the site: It has to pay the labels about half-a-cent every time it plays a video, and it doesn’t generate enough revenue to cover those costs.

But if YouTube could somehow separate the music video traffic from the rest of the site–as MySpace has managed to do with its MySpace Music offering–that could change. As I’ve written before:

What would YouTube Music look like? It’s not that important. Maybe in addition to videos, it would offer downloads via Amazon’s (AMZN) digital media store, as MySpace does. Maybe it would have detailed biographies and a spartan design, like that MTV video site that MTV pretends doesn’t really exist yet. Doesn’t matter.

What is important: Like its MySpace predecessor, YouTube Music would take the large audience that already consumes music content throughout the site and assemble it one place. That might have some benefits for the site’s users. But it’s undeniably useful for the site’s ad sales team: Advertisers like clean, well-lit spaces with lots and lots of bodies, and partitioning off music creates just that.

That’s why MySpace Music was able to launch with an array of blue-chip advertisers last fall. And there’s no reason why those same advertisers wouldn’t pony up for YouTube music too.”

Want to see a video from one of the acts signed to the world’s biggest music label? You can’t see one embedded in this site from YouTube–at least not an official one. That’s because UMG has disabled the embedding feature from its YouTube clips, which, unfortunately, is standard practice for the big labels.

So here’s David Letterman talking about one of the label’s acts.

1) The big music companies continue to post crummy results.

2) Vivendi’s Universal Music Group, the biggest music label in the world, continues to post results that aren’t as bad as its competitors.

The newest data points come via Vivendi’s fourth-quarter earnings release, which announces that Universal’s sales declined six percent in the last three months of 2008. Strip out currency fluctuations and that number would have been minus 7.8 percent.

That’s bad, but not as bad as the 11 percent drop that Warner Music Group (WMG) reported during the same period, or the 22 percent decline that Sony’s Sony Music Entertainment (SNE) recorded. Universal says earnings (EBITDA, in this case), declined 3.6 percent for the quarter, or 6.6 percent if adjusted for currency fluctuations.

Per usual, Vivendi doesn’t provide much more in the way  of meaningful data about Universal’s performance–though it does say it sold a lot of Lil Wayne music last year. For what it’s worth, here’s what it said about UMG’s results for 2008:

Revenues: Down 4.5 percent (-0.2 percent after adjusting for currency).

Earnings (EBITDA): Up 9.9 percent (11.6 percent after adjusting for currency).

Recorded music sales: Down 8.8 percent, (-4.8 percent after adjusting for currency).

Digital sales: Up 31 percent (the company only provides a currency-adjusted number here). It says online sales were strong “in all large countries”–thank you, Apple (AAPL)–and that mobile sales were strong everywhere outside the U.S.

Obligatory YouTube clip: Here’s UMG star Lil Wayne having a giggle with Katie Couric about his marijuana intake.

Well, that’s all resolved now. In a convoluted way. But it’s resolved. Via New Jersey’s Star-Ledger:

Ticket giant Ticketmaster has reached a national settlement with the New Jersey Attorney General in which it agrees to stop linking customers to TicketsNow, a subsidiary agency that sells tickets at scalper’s prices.

Attorney General Anne Milgram said Ticketmaster has agreed to run a lottery that will make 2,000 tickets available at face value to customers who complained about the way Ticketmaster handled the Feb. 2 sale of tickets to Bruce Springsteen’s shows May 21 and 23 at the Izod Center at the Meadlowlands….

Fans–more than 1,000–who don’t win a pair of tickets in the lottery will be given $100 gift certificates, Milgram said, and the ability to purchase tickets for an upcoming Springsteen concert in New Jersey.”

Ticketmaster (TKTM) will also pay a $350,000 fine, and has agreed to stop using Google (GOOG) keywords to direct Ticketmaster searchers to TicketsNow.

Given that Ticketmaster and Live Nation are trying to pull off a politically tricky deal, this seems like a great settlement for Barry Diller, Irving Azoff and company–no use going before the Department of Justice while you’ve got state investigations into your ticketing practices.

And what does Springsteen himself think about the deal? There’s no comment from him or his management team on his site. But tellingly, his previous comments about the Ticketmaster/Live Nation deal–the ones where he described the proposed merger as a “near monopoly” and asked his fans to complain to their representatives about it–have vanished from his site.

I’ve spent way too much time trying to wrap this one up with a Springsteen lyric pun. Too hard! So here’s your YouTube, instead. Apologies for the subpar video/audio: Sony Music Entertainment, Springsteen’s label, won’t allow me to embed the higher-quality versions.

The deal, which extends a previous agreement, has been finalized but not formally announced, multiple sources familiar with the matter tell me. A spokesman from Google’s (GOOG) YouTube said the company would not comment on “rumor or speculation”; Sony’s (SNE) music label declined to comment. Last week, CNET reported that the two companies were “very near” to a deal.

It’s unclear what the final deal terms are, but people familiar with the matter tell me that the negotiations revolved around three components: an upfront payment from YouTube to Sony, the minimum amount Sony will receive each time someone plays a Sony video on the site, and the way the two sides will split revenue generated by any of the label’s videos.

Those terms had previously tripped up Warner Music and YouTube in December, and Warner Music (WMG) artists have been taken off the site while the two companies try to work out a new licensing deal. Sony Music’s artists range from Britney Spears and Beyoncé to Bruce Springsteen and Bob Dylan.

Music videos are some of YouTube’s most popular offerings, but they have also been expensive for the video site. Under the terms of its old deals with the labels, YouTube agreed to pay the music companies either a per-stream fee or a share of ad revenue associated with the clip, whichever is greater. Since YouTube is just beginning to get serious about selling ads next to its content, it’s usually paying the per-stream fee, which industry executives peg at about half a penny per clip.

The music labels have been angling to increase that fee to perhaps eight-tenths of a penny, while Google has been pushing in the other direction, where the two sides would simply share any revenue the clips create.

Infuriatingly, seemingly all of Sony Music’s official YouTube videos have had their embedding function turned off, which means I can’t share them with you. So here’s an unofficial but still excellent clip of The Clash, who recorded for the company’s Columbia label.

And that’s no surprise. By all accounts, the music industry’s slide accelerated at the end of 2008, so the only question here is how bad each major label did. In Warner’s case, it saw sales drop 11 percent, while operating income dropped 34 percent. U.S. sales dropped 18.8 percent.

Warner reminds us that it sold a lot of Josh Groban discs a year ago, and it didn’t do that this year, so its results are skewed. Skeptic’s answer: Shouldn’t you have hit records every year?

In any case, some more could-have-been worse news: After you strip out a one-time gain, Warner lost nine cents per share last quarter–which is better than the 15 cents per share Wall Street thought it would lose.

And yes, digital sales continue to increase, though more slowly than in the past. Warner recorded $142 million in digital revenue, which is up 20 percent compared to the same quarter the year before. But a year ago, Warner had posted a 41 percent gain in digital. Yet another reason to look askance at Apple’s (AAPL) boast about “record” sales at its iTunes store last Christmas.

Given that Warner is the only publicly traded big music company, its results are worth paying attention to. Glenn Peoples at Coolfer has done a nice job with a transcript.