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McDonald's, Toyota in harmony with MySpace Music

Here comes MySpace Music. Execs say some advertisers paid eight-figure sums to ally with service expected to launch this week. Can the service challenge iTunes?

With rumor and speculation whirling around the launch of MySpace's music service--expected to launch this week--it's nice to finally get some hard news.

The company is expected to announce Monday that McDonald's, Toyota, and State Farm Insurance have agreed to advertise on MySpace Music, the new music store backed by billionaire Rupert Murdoch's News Corp. and three out of the four largest music labels. Advertising will be a major component for the new start-up, MySpace executives said. That makes sense as that's what Murdoch's troops understand. Selling music is a new area for News Corp.

The joint venture is shouldering nothing less than the best hopes of the music industry to mount a legitimate challenge to Apple and its juggernaut of a music store, iTunes. Look around, few of the other guys are left. Sony Connect, Yahoo Unlimited and MSN Music bowed out. Napster, Rhapsody, and Microsoft's Zune (with its Marketplace music store) have been chased to the market fringes.

It's still too early yet to count out Amazon.com, but there's little indication at this point that the online retailer can seriously dent iTunes' market share. That means the recording industry has to hope MySpace, with its 120 million worldwide users, is in a unique position to market music to a mass audience like no other Apple rival.

Few Apple rivals could boast 120 million users
Those behind MySpace believe the site is positioned to sell and promote music. Video and music have long been part of the site's DNA. More than 5 million acts already promote themselves there. MySpace's music offering is still one of its best draws and one of the few areas left where it clearly dominates rival social network Facebook.

At launch, the MySpace Music store is expected to offer free streaming music and sell MP3 without copy-protection software, as well as ringtones and merchandise such as concert tickets.

Another area where MySpace seems to be besting Facebook is lining up premium advertisers. Jeff Berman, MySpace's president of sales of marketing, said that the premium advertisers paid big money, some even plunked down eight-figure sums. He said advertising on MySpace Music will go deeper and be much more creative than just posting some banner ads.

"We'll be identifying the tastemakers on the site," Berman said, "the people who curate for their friends and instead of just pairing brands around artists we'll also do it with the people who influence others."

This kind of ad-sales firepower thrusts MySpace Music into music industry's center ring even before its doors opened. But this has also made it a big target with competitors. It leaked months ago that MySpace Music would launch in September. Is it a coincidence that Apple and Yahoo Music made music announcements last week and iLike, a social network rival, is expected to make one on Tuesday?

And rumors have circulated through the music industry for months about the service. Just in the last week, one rumor said that MySpace Music had raised $100 million in venture funding. A conflicting rumor indicated that whatever MySpace raised, it was short of the company's goal and that it would try again later.

Then there was the attention paid to MySpace Music's CEO; the company doesn't have one. Music industry sources told me that MySpace was preparing to launch the site without a CEO in place as it had lots of candidates left to evaluate. It appears now that the company is rushing to fill the spot.

CNET News reported earlier this month that Andy Schuon, a longtime music industry executive, was a candidate. Last week, TechCrunch wrote that Owen Van Natta, Facebook's former chief revenue officer, was in the running. On Saturday, The Los Angeles Times reported the field has been whittled down to the two of them.

Many others dueled Jobs and lost
If the company is without a CEO at launch, that might be the least of its problems.

First, the service is up against the maestro of music marketing in Apple CEO Steve Jobs. Unlike MySpace Music, Apple offers digital music players in addition to its online store. Sure people will be able to download MySpace Music's open MP3s to their iPods and iPhones. But will they?

I've been downloading a lot of songs off iTunes lately--even though I hate that they're wrapped in digital rights management--just because it's so easy to do on my iPhone 3G. Yes, that's an impulse buy. Can MySpace duplicate that?

MySpace Music will indeed offer free streaming of songs, which users won't be able to be downloaded to any mobile device. Free streaming helps people discover new music but it hasn't been proven to boost music sales. Sites like iMeem and Last.fm (owned by CBS, publisher of CNET News), also have significant head starts in offering free streaming.

Another potential obstacle is that MySpace Music is a joint venture. Music insiders say that such partnerships among the biggest labels haven't fared well in the past.

It may be ironic that MySpace Music is considering Schuon for CEO. In 2001, he was named CEO of Pressplay, one of the two joint-venture music services the music industry launched in 2001. Schuon stayed 13 months at Pressplay, which was backed by Sony Music Entertainment and Universal Music Group, before leaving for Infinity Radio.

Pressplay and rival service MusicNet formed by EMI, BMG and Warner failed to go anywhere and were sold off.

Still, the music industry is banking that social networks will spearhead Music 2.0. Said James McQuivey, a Forrester analyst, last spring when MySpace announced it was building the site: "MySpace Music is not a serious threat (to Apple) for at least two or three years. Apple's iTunes succeeds because of its connection to an amazingly popular device.

"What MySpace Music does," McQuivey continued, "is establish a new level of expectation about what music could be in people's lives."

CNET News' Stefanie Olsen contributed to this report.