Labels Size Up Web 2.0 Music Services

Outlook Is Optimistic

A torrent of bad economic news is pouring down on Web 2.0 music sites, just like everywhere else, writes GREG SANDOVAL on CNET.COM. What's surprising is that even amid the horror story that is our economy, some online record stores have impressed music-industry poobahs, say insiders.

LALA, GOOGLE'S YOUTUBE, and LAST.FM, owned by CBS, are some of the companies that executives at some of the top labels say are generating "cautious optimism." At the same time, some big-label managers are underwhelmed with the performance of several shops, such as ad-supported download site SPIRALFROG, and social network IMEEM.

To be sure, none of the start-ups is delivering ITUNES-like numbers. Digital music services are still in their infancy and have the misfortune of being hit by a macro-economic wrecking ball early in their development. The label honchos know this and take this into account when evaluating partners. That's why most continue to strike deals. The most recent came two weeks ago, when WARNER MUSIC signed an agreement with start-up peer-to-peer service, QTRAX.

What is just as true is the top recording companies are in belt-tightening mode, just like every other sector, and patience is running out for underperformers.

"What's happening is that everybody in new media is scrutinizing their relationships," said JAMES MCQUIVEY, principle analyst at FORRESTER RESEARCH. "This is happening in online video as well. (The big entertainment companies) are even looking at the successful services, the ones bringing in traffic and revenue. There was a honeymoon period in 2007 and 2008 when the labels would take some risks, but they may not want to continue placing a bet on something that isn't performing."

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