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MySpace Faces the Music

Music and MySpace go together like cheddar and macaroni, so it's not surprising to see News Corp.'s (NYSE: NWS  ) social networking site in serious negotiations with major music labels to launch a revenue-sharing platform.

Yesterday's New York Post details how Warner Music Group (NYSE: WMG  ) and Sony BMG -- a partnership between Sony (NYSE: SNE  ) and Bertelsmann Music Group -- are close to signing a deal that will create new revenue channels in ad-supported music and music videos, pay-per-downloads, and mobile phone delivery.

EMI and Universal are likely to follow, even if Universal is currently in a legal tussle with MySpace. They can't afford to let Sony and Warner hog up the marketing muscle that a culture-shaping powerhouse like MySpace commands.

MySpace has always had a musical bent. It's hard to find an artist -- indie or signed -- without a MySpace profile page. Non-musicians are encouraged to add music to their pages from MySpace Music artists who agree to broadcast their tunes on other profile pages.

The only real question here is how important this new service will ultimately be. Ad-revenue sharing deals imply that there is enough advertising revenue worth sharing, and even ad-serving partner Google (Nasdaq: GOOG  ) has lamented the difficulty of monetizing ad space on social-networking sites like MySpace and it's own Orkut.

Paying for downloads is even trickier, since Apple (Nasdaq: AAPL  ) dominates that market. Mobile downloading offers slightly more of an opportunity, especially with customization-crazy cell-phone users willing to pay more for ringtone snippets in their handsets than actual downloads. Still, the competition is huge in that space.

In the end, it's easy to see why MySpace is dreaming big. It's the labels that I worry about. They can't approach this deal as salvation for their fading ways. It may be a temporary stopgap, but striking revenue-sharing deals on a site populated by cash-strapped teens is like slapping moldy cheddar on top of twice-boiled macaroni.

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