Warner Music Group (NYSE: WMG) has asked CBS Corporation's (NYSE: CBS) free on-demand music streaming service Last.fm to remove the label's music from the site "in an apparent dispute over compensation rates." Billboard reports that CBS is "currently negotiating a new agreement with Warner Music Group and are working hard to built the most comprehensive music service on the Web." Music from Universal Music Group, Sony BMG Music Entertainment, EMI Group, and various independent labels remains on Last.fm, and the site's Internet radio service still offers songs from WMG artists.

CBS purchased British-based Last.fm a year ago for $280 million, and WMG was the first major label to sign with Last.fm in February 2007. According to Billboard, WMG had continued to keep music with Last.fm "on a month-to-month basis" after the original deal lapsed. Unlike paid subscription-based services, Last.fm and other free services offer consumers music without charge, and are ad-supported. News Corp.'s (NYSE: NWS) MySpace will soon be starting it's own similar service, which will tap into the social networking site's large user base.

Billboard also reports that WMG had grown "disenchanted with Last.fm's compensation rates" after comparing the rates to other services like the forthcoming MySpace Music. In addition, WMG "owns equity stakes in MySpace Music" and "has been frustrated by Last.fm's failure to proceed with its plans to launch a music subscription service." Paid subscription services have been being pushed by the music labels over other sites and stores like Apple Inc.'s (NASDAQ: AAPL) iTunes Store because they offer better profits for the labels. Mobile phone services have started to tap into this very service, offering consumers music and players on new phones developed for that very purpose.

Last Tuesday, workers who like to plug themselves into their favorite music genre while sitting at their desks stumbled upon some dead air. Many top providers of streaming Internet-radio services, from Yahoo! (NASDAQ: YHOO) Launch to Live365 and Pandora participated in a "Day of Silence" to protest the threat of impending royalty increases that would have a detrimental effect on the industry. Broadcasters that carry their tunes over the cyber airwaves only are facing a dark day on July 15th, when 17 months' of retroactive royalty payments (at staggeringly high rates) come due.

The silent airwaves, together with a petition effort at SaveNetRadio.org, may have made a modest impression. According to Forbes, SoundExchange - formerly a division of the Recording Industry Association of America - said Friday it will extend a cap on a portion of the fees owed by Internet radio operators. The $2,500 cap on an annual $500-per-channel fee currently charged to Internet radio stations may be a tiny sigh of relief to both web-based station operators and avid listeners who feared last Tuesday's silence was a grim omen of things to come.

But the industry is hardly free from worries. SoundExchange is currently willing to extend this cap through 2008; the Digital Media Association, which represents Internet radio stations including CBS Corp.'s (NYSE: CBS) Last.FM, does not want to accept anything short of an extension through 2010. Additionally, the Internet stations are facing a per-song royalty charge of 19 cents starting July 15, up from current levels of 8 cents per share. Nonprofit and small commercial Internet radio outfits are currently being given the concession of lower royalty rates.

The prospect of silent Internet airwaves is certainly not one I relish. For the past 8 or so years, I've relied on Internet radio to keep me sane at work, introduce me to new artists, and maintain a lively discourse with my co-workers (does Tom Petty belong on Slacker.com's "90s Alternative" station? Hardly). I truly hope the battling forces can work out an agreement that is fair and pleasing for all sides.

Beth Gaston Moon is an analyst at Schaeffer's Investment Research.

After the split of CBS (NYSE: CBS) from Viacom (NYSE: VIA), Wall St. wondered whether either company would do well. Both were in old-world media, and neither had a major internet presence the way that TimeWarner (NYSE: TWX) did with AOL and News Corp (NYSE: NWS) did with MySpace.

But, CBS's plans have caught investors' eyes. The stock is up 27% over the last year, compared to Viacom at 15%. And, CBS has created its own internet marketing program that has led Wall St. to believe that the company can capitalize on new media.

Recently, the media company bought online ticket sales firm TicketReserve. CBS also paid $280 million for radio streaming company Last.FM.

The CBS core businesses are also doing well. The network will finish the current TV season as the most watched network for the fifth year in a row. In the most recent quarter, the company's broadcast properties showed a modest increase in revenue compared to the same quarter a year ago.

Short interest in CBS dropped six million shares in June to 43 million. If the compay's internet plans go well and network rating stay high, there is little reason to think the stock will not keep rising.

Douglas A. McIntyre is a partner at 24/7 WallSt.

CBS Corp. (NYSE:CBS) took another step into the internet world yesterday with its $280 million purchase of online social networking/music site last.fm. This follows last week's acquisition of the internet stock market show WallStrip.

Last.fm acts as both a music guide and internet radio/music distribution site. Members allow the site to track their PC/iPod listening habits, and the site customizes streamed content of new music matching their tastes. Last.fm also allows artists and labels to upload new music (with accompanying permissions), so they can (hopefully) build a following.

The UK-based site began five years ago, and now claims 15 million members.
CBS still owns the largest radio network in the U.S., and I'm interested to see if and how they might integrate last.fm into this business. The two seem to be, to some extent, competing technologies, one in decline (radio), one ascendant (internet). The sale came as a surprise to some pundits who had speculated Viacom (NYSE:VIA), until recently part of the CBS empire, was prepared to offer as much as $450 million for last.fm.

Last.fm could provide CBS with a valuable platform for distributing content and a channel to retain advertising flowing to the internet. However, at present, no one site clearly dominates the music networking world. While CBS now has a seat at the table, the fight for ears and eyeballs will continue to grow more interesting.