Despite criticism by Irish band U2's manager Paul McGuinness over Radiohead's method for releasing In Rainbows last October, U2's lead singer Bono has published an open letter in NME disagreeing and applauding Radiohead for the album and how it was released. McGuinness told the BBC in early June that the method was "a failure and backfired" because "it still resulted in over 60%-70% of listeners acquiring the album through illegal channels."

Bono's letter to NME, printed in last week's issue, takes a sharp left turn from his manager's opinion, calling Radiohead "courageous and imaginative in trying to figure out some new relationship with their audience." Bono also remarked how "blessed" he feels "to be around at the same time" as "a sacred talent" like Radiohead. U2 have recently taken steps to reach their audience, joining forces with Live Nation Inc. (NYSE: LYV) in a deal that will market their music and concerts with related products from one location.

U2 is still signed to Universal Music Group for the band's record releases, which may have been one reason McGuinness came out against the method Radiohead used last year. Neverthless, the disagreement between manager and lead singer is insignificant compared to the applaud Radiohead continue to receive from fellow artists. Trent Reznor of Nine Inch Nails, a band that was also signed to Universal Music Group, has also come out in support of Radiohead's method, even though he, too, took issue with some aspects of it. Reznor has since released two NIN albums the same way.

Industrial progressive rock band Nine Inch Nails' most recent album The Slip will be available in physical formats on July 22, Billboard reported Wednesday. First reported on May 5, the album is the band's third album in a little over a year and the second since leaving music company Universal Music Group. Unlike other physical releases though, a CD version will be limited to 200,000 copies in the United States, Canada and Japan, while a later vinyl version will be unlimited. Band leader Trent Reznor also told Billboard the album "will remain free to download 'indefinitely' from the band's site."

The availability of a vinyl copy of The Slip versus that of the CD version mirrors similar sentiments that I commented about yesterday. Music company EMI packaged the vinyl version of Coldplay's Viva la Vida or Death and All His Friends with a CD version, indicating that despite vinyl's allure, the industry is aware that listeners want versions that can be transferred to portable devices.

NIN leader Trent Reznor was obviously aware of this desire from his fans, since the album will feature an unlimited release for the vinyl version. It could also indicate his own preference, which would not be surprising. Either way, when The Slip is released physically, consumers and listeners will still have the option to download the album for free if they decide to buy a physical copy, whether it's the limited CD or the unlimited vinyl. Numerous formats may seem tedious, but if the experience is part of the joy of listening to music then it is being accommodated.

Billboard reported last Thursday that a federal District Court in Los Angeles has denied a motion by Universal Music Group to find an eBay Inc. (NASDAQ: EBAY) seller who sold promotional CDs the label claims are its property (and thus not eligible for sale) liable for copyright infringement. UMG argued in its motion that a label printed on the discs stating they "were promotional and could not be sold" gives the holders of the CDs the right to listen only and not sell the CDs. According to the BBC, the motion from UMG was first filed against eBay seller Troy Augusto in May 2007 and resulted in the cancellation of an auction and threats from eBay.

The federal court argued that the label could not prevent that sale, and Billboard added that copyright law states "once the legal title to a lawfully made copy of a copyrighted work is transferred, then the person who obtains that copy owns it and may dispose of it." That does not mean an owner of the item can copy and sell the new version for profit ,though. Troy Augusto, the eBay seller targeted by UMG, argued to the court that the recipients of the CDs from UMG could treat the items as gifts under federal law and the court agreed with this assessment.

The yearlong affair between Universal Music Group, Troy Augusto and eBay, brings a larger question into the fold: What is the point of these promotional CDs? Before the advent of the digital market, physical copies distributed to sell new music via the radio made perfect sense, and in many ways they still do because these items are easily played on stations. But, with MP3 files and stores like Apple Inc.'s (NASDAQ: AAPL) iTunes Store leading the way for sales and marketing, could the record industry make promotional MP3s available to both radios and consumers?

Bloomberg reported Thursday that News Corp.'s (NYSE: NWS) MySpace asset wants to leverage its mindshare to sell music. Not a huge leap of logic there -- MySpace is a touchstone for the online-savvy youth, a group that enjoys consuming songs and going to shows. Only problem is, the MySpace generation also intersects with another club -- the iPod generation -- and going against Apple (NASDAQ: AAPL) won't be a simple task for Rupert Murdoch and his social-networking empire.

Bloomberg points out an another interesting issue for MySpace -- its buzz appears to be weakening somewhat. I found it very interesting that Facebook is challenging MySpace's dominance in terms of user growth, and that Google (NASDAQ: GOOG) may not be doing as well with its MySpace deal as perhaps it theoretically should be.

This music initiative, called MySpace Music, is intended to aid top-line sales expansion. Remember the days when MySpace was the undisputed god of the web? Hey, it's still a major online brand, no question, but I find it funny how, in certain respects, MySpace just isn't the untouchable social network that it once was. It definitely calls to mind the axiom dictating that the hot domain one year might not be quite the zeitgeist the next; I've certainly been hearing more and more about Facebook than I have about MySpace these days.

According to the BBC this morning, Irish rock band U2 have signed a 12-year deal with Live Nation, Inc. (NYSE: LYV) on top of the band's deal with Vivendi's Universal Music Group. The deal will see the band consolidate previous arrangements and connections with Live Nation and includes merchandising, digital, and branding rights. U2 follows Madonna into an extensive contract with Live Nation, although record releases were included for Madonna.

Financial arrangements between U2 and Live Nation have not been disclosed, but it would not be surprising to see the band enjoy a similar deal to Madonna, who reportedly signed for $120 million over 10 years. Both deals are part of a larger trend of so-called "360 degree deals", according to the BBC, where artists "combine their recording, publishing and touring revenues." U2's lead singer Bono told the BBC as well that U2 and Live Nation had been in a "relationship for 20 years" so the new deal has been a long time coming.

U2's move is quite unsurprising given the latest trends for artists, but it should be noted that record label Universal retained a relationship with the band. As previously stated, Madonna's deal included Live Nation taking charge from Warner Music Group (NYSE: WMG) to release her new albums (after the upcoming release). The fact that Universal was able to keep U2 in some degree means that either a larger deal for the release of albums was already in place, or the record labels are seeing the shift and making amends to keep artists in traditional outlets.

Reuters reported yesterday that privately held EMI Group plans to join Vivendi's Universal Music Group and offer songs in Nokia (NYSE: NOK) mobile devices as part of the new "Comes with Music" program. The report comes out of Nokia's home country, Finland, but since Universal's commitment bridges international divisions, it is likely the EMI connection will as well.

The "Comes with Music" program was first announced in December 2007, with Universal fully on board to offer unlimited access to millions of Digital Rights Management-free tracks for a year, and any tracks on the phones at the end of the year becoming the consumers'. Clearly, the program has a major upside in that the end of a subscription does not mean music tracks are going to disappear, something that always seems to be at the fore of subscription-based music plans. The tracks will also be available on those consumers' computers.

As nice as the plan is, the labels will not lose too much from allowing a subscription plan like that to take off. Nokia and label executives are banking on the size of catalogs to combat fears that it will hurt the music industry financially. In the press release for "Comes with Music", Nokia's Executive Vice President for Multimedia stated, "even if you listened to music 24 hours a day, seven days a week, you would still only scratch the surface of the music that we're making available."

With two major labels on board, the "Comes with Music" program is sure to be on the right track to succeed when it is launched later this year. The only worry that likely remains is whether any other digital store will initiate a better or similar plan to increase sales.

Rumors now frequently circulate about massive music acts leaving their long-term record labels. Last spring Paul McCartney defected from EMI after 45 years to join Starbucks' (NASDAQ: SBUX) Hear Music label. Madonna left Warner Music Group (NYSE: WMG) last fall. Other artists have followed suit, while some who are still signed have started speaking out against their labels. In this most recent case, Irish rock band U2 is rumored to be leaving Vivendi's Universal Music Group to sign up with Live Nation (NYSE: LYV).

Although I wouldn't blame the artists for leaving their labels, as long as it is in their best interests and increases fans accessibility to the music, it is certainly going to affect the record industry long-term if the defections continue. At the same time, many critics and bloggers would point out that the acts switching labels are already past their prime -- their big hits and money-making lies with albums that came while they were at the labels. That may be true for acts like McCartney, U2, and Madonna, but the best example of this -- Radiohead -- is hardly through making the huge hits they enjoyed while with a major record label.

Radiohead, if you remember, is that "little" band that caused such a stir last October when it decided to release its new album, In Rainbows, to fans in a pay-what-you-want model. When the album was released on CD earlier this year it hit #1 in numerous charts around the world.

Obviously, none of these acts would have achieved such huge successes without major record labels, and it is impossible to say that the future of the record industry is without music labels. These rumors and the actual occurrences indicate that companies like Live Nation and Starbucks, while not necessarily oriented primarily for music distribution, are making better gains than the labels. This will not be ignored for long so the rumors may cease, and only indicates the movement music acts are making for the time being.

Today Amazon.com, Inc. (NASDAQ: AMZN) announced an agreement with Warner Music Group Corp. (NYSE: WMG) to distribute music through the Amazon.com digital music store. The key feature to these downloads will be the absence of digital rights management (DRM), meaning that customers who download these songs will not be restricted in their use. They will be able to play them with any music player or computer, unlike Apple, Inc. (NASDAQ: AAPL)'s limited format.

Now, more than 2.9 million titles will be available at Amazon, including those by many well-known artists. Warner Music is added to the line-up, which already included Universal Music Group, EMI Group plc (ADR) (OTC: EMIPY), and thousands of independent labels.

Songs on Amazon cost $0.89 to $0.99, with full albums priced at $5.99 to $9.99. These prices are somewhat comparable to Apple's iTunes, whose individual songs sell for $0.99, with album prices varying.

While some consumers and analysts feel that DRM is necessary to protect the financial interests of the artists and record companies, others think that the lack of DRM will actually benefit them more in the long run. By making the music more accessible and transferable, some people think that consumers will be more likely to buy more music. (I agree!)

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

In the United Kingdom, retailers have "urged the music industry to drop piracy protection for online downloads after new figures showed the average Briton has bought fewer than three digital tracks in the past three years" according to the Financial Times. The Entertainment Retailers Association also states that anti-piracy methods have inhibited growth in the digital market and are "working against the consumer interest." The three tracks in three years figure is slightly hard to believe, but another point in the article made me think about the upcoming holiday season and digital music players.

The Financial Times remarked that the ERA is urging the music industry before the Christmas season because hopes are that digital sales could grow tremendously in January for consumers that want to load up their new players. While the average user might not be able to tell the technological benefits of Digital Rights Management (anti-piracy) free tracks, they can certainly enjoy the ability to easily transfer said track without having to worry about the tedious protection measures. Unfortunately, anti-piracy protection seems to inevitably require the consumer to sign in and confirm purchases, no matter the length of time since it has occurred.

DRM-free technology (anti-piracy) software has come under fire since February when Apple Inc.'s (NASDAQ: AAPL) Steve Jobs challenged the music industry to drop usage of the technology. So far the challenge has only been partially successful with London-based EMI the only music company to fully drop DRM and offer higher quality tracks for sale in various digital stores, including iTunes. The other music companies have not been as quick to adopt a DRM-free position, with Universal Music Group the only other label even beta testing files without it.

In a news piece that is gaining more and more momentum, Rolling Stone issued an article on Friday featuring an interview with hip hop artist Nas about his new album and Universal Music Group's decision to back his choice for title. Meanwhile, New York area legislators are demanding the State Comptroller withdraw a pension fund from UMG unless the title is changed, arguing that UMG and Nas are "profiting from a racial slur that has been used to dehumanize people of color for centuries."

Nas can certainly feel confident with his title choice, as the record label has backed him and offered no comment for the piece. According to the rapper, the controversy surrounding the album "is like talking to your children about sex. It's hard, but it's important." Despite the difficulties that may raise among whoever talks about the album, as Nas also states it is "just an album." Listeners and fans will decide to buy the album presumably on their like or dislike of Nas's past work and if reviews are positive for this album.

Of course, listeners may be enticed to purchase the album strictly for the title, or they may be turned away. No matter the controversy surrounding the decision, or the decision itself, in the end it appears like any other marketing stunt. Universal Music certainly has nothing to lose in the venture; the company's share in the music industry is around 30% and they have a wide lead over the next competitor, Warner Music Group (NYSE: WMG), at 25%. In any case, in a month we can see if the controversy amounts to anything and what kind of reception the album will have.

Sony BMG (a merger between Sony Corporation (NYSE: SNE) and Germany's Bertelsmann) posted a $8 million loss in sales during the company's fiscal second quarter, which ended on September 30, in a report by Billboard today. Sales in the second quarter totaled $851 million, which was down from $948 million during the same period of 2006. Nonetheless, Billboard notes that the $8 million loss is lower than that year's $39 million drop.

Sony BMG attributes the drop "to the declining of the physical music market and to fewer major artist release in this year as compared to last year." The $8 million drop is also compared with the 2005 second quarter results, which were $60 million lost and revenues of $936 million. Clearly some gain has been made in lowering the drop, but in comparison to the large revenue gap between 2006 and 2007, the loss seems pale.

In the record industry, Sony BMG has traditionally ranked second to Universal Music Group, amounting to about 25-30% of the market. The company has also reportedly signed on with Universal to create the new Total Music, which hopes to compete with Apple Inc. (NASDAQ: AAPL)'s iTunes Store, but as a subscription-based service. Unfortunately, Universal Music's second quarter earnings have not been announced, so any correlation between the two largest music companies and the decision to create Total Music cannot fully be assessed.

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According to a report by Billboard yesterday, Apple (NASDAQ: AAPL) plans to expand and lower the price of the iTunes Store's offering of Digital Rights Management-free music downloads. The new tracks to be added will apparently come from "a variety of independent labels," but unlike the $1.29 DRM-free tracks already provided by EMI Music Group, they will be priced at 99 cents. An official announcement for this new plan is expected later this week.(Read more news about iTunes on TUAW, The Unofficial Apple Weblog).

The early report also indicates that the cost of the EMI tracks may also fall to 99 cents, but the exact rationale for the drop is unexplained. Billboard speculates that a new deal between Apple and EMI may be the reason, or that Apple will simply sacrifice a nice profit margin for the higher-quality, unprotected tracks. Such a price drop would keep iTunes in sync with other digital stores, like Amazon.com (NASDAQ: AMZN)'s new MP3 store. The validity of such a move is questioned by Billboard, and any announcement with the new plan is unexpected.

Apple first offered DRM-free tracks from EMI after an agreement was reached between the two companies in April, but it was not an exclusive deal, and the music has since become available on Amazon and other stores at lower prices. An addition to the DRM-free catalog is certainly nice, but since iTunes only offers DRM-free tracks from EMI and independents, Amazon and other stores have the edge in the market. Amazon offers DRM-free tracks from EMI and other major labels, including Universal Music Group (who halted negotiations for a new multi-year deal with Apple in July).

A new report today indicates that Universal Music Group chief Doug Morris is aiming to create an industry-wide competitor to Apple (NASDAQ: AAPL)'s iTunes Store. According to BusinessWeek, Morris has already enlisted Sony BMG, a merger between Sony Entertainment (NYSE: SNE) and Germany's BMG, and is in talks with Warner Music Group (NYSE: WMG). The service Morris intends to create will be called Total Music and "move digital music beyond the iPod-iTunes universe by nurturing the likes of Microsoft (NASDAQ: MSFT)'s Zune media player and Sony's PlayStation and by working with the wireless carriers."

The move comes after Morris and UMG declined to renew a multi-year contract with Apple in July because Steve Jobs and company would not "ease stringent terms limiting how record companies market their music." At this time, Universal's music remains available on iTunes on a month-to-month basis. The new subscription-based service would ask "hardware makers and cell phone carriers to absorb the cost of a roughly $5-per-month subscription fee so consumers get a device with all-you-can-eat music that's essentially free." In that model, the music companies would take the fee and the manufacturers and carriers would sell more devices, in theory.

The new service is also attempting to bank on calling music a utility that consumers are entitled to own. BusinessWeek comments that this is a lot like the iTunes model but takes it one step further, and reminds us that the music companies have set up subscription services before and failed to maintain a place in the market. The one question that remains is whether consumers buying the devices and subscribing for $5 will be able to keep the music they download? If this model is based on iTunes, then that would be a resounding yes. Otherwise, it is simply another service that takes the control of music "ownership" out of the consumer's hands. It's hardly a utility if you have to give it back.

Universal Music Group, a division of Vivendi SA (LSE: VIV), announced plans yesterday to test the sale of tracks without Digital Rights Management technology with vendors Amazon (NASDAQ: AMZN), Google (NASDAQ: GOOG), and Wal-Mart (NYSE: WMT), according to Reuters. Notably absent from the trial is Apple Inc. (NASDAQ: AAPL)'s iTunes Store, but DRM-free MP3 tracks will still be playable on the iPod, in addition to various other players.

Universal's trial run is set to last through January, allowing the largest of the four major music companies to "analyze such factors as consumer demand, price sensitivity and piracy in regards to the availability of open MP3s."

With the test run, Universal joins EMI Group PLC (LSE: EMI) as the only two of the four major music labels to offer DRM-free tracks for sale. Warner Music Group (NYSE: WMG) has remained staunchly in favor of the technology, while Sony (NYSE: SNE)'s BMG Music Entertainment has made hints that it may too explore DRM-free tracks, but remains with the protective technology.

Apple's absence from the trial could hint at record labels' displeasure with the company, or perhaps it's simply a method to ascertain a test run away from the third-largest music retailer. iTunes has offered EMI's DRM-free tracks as part of a new "iTunes Plus" service since late May. Those tracks run 30 cents higher than DRM-encoded tracks, but it is not known whether Universal will adopt a similar price scale during its trial.

Billboard reported music sales for the first half of 2007 according to Nielsen SoundScan this morning. To no surprise, physical formats have dropped 15.1% in the period while digital sales have increased 48.5%. Single track downloads, the most popular format of digital sales, are responsible for that boost - 417.3 million tracks were sold in the first half, a significant boost over the 281 million of the first half of 2006. Of course, even with the continued growth of digital sales, the industry is not in good health (this is nothing new).

The report notes that among the labels, Universal Music Group sold the largest share of sales with 31.6% over the 25.2% and 20% of Sony BMG and Warner Music Group (NYSE: WMG) respectively. Independent music labels disconnected from the majors accounted for 12.85%, while EMI Group PLC (LSE: EMI) only maintained a 10.3% share despite the company's introduction of Digital Rights Management technology free tracks midway through the time period.

According to the article, with the combined numbers of physical formats and the translation of digital sales to the corresponding physical value, there is only 9.1% decrease compared to the first half of 2006. Despite the apparent "good" news that the lesser number means, the music industry is still falling apart in all sectors. Digital track sales make it apparent that the album truly is dying and that a new model is needed. The music industry will have to start completely over from scratch because the continued decline makes it obvious that survival is becoming less and less an option.