Playlist.com Files for Bankruptcy, Owes Millions to Major Record Labels

Will iTunes switch to streaming? When is cloud-based Spotify launching stateside? Is Google Music more than just a rumor? How long will Pandora and Grooveshark last? We all want free streaming music, but can ad-supported services survive?

All these answers depend on the four major record labels—EMI, Sony, Universal, Warner Music Group—which control nearly 80% of the U.S. market, and have struggled to find partners with financially viable business models for online streaming. In yet another reminder of this, free music streaming service Playlist.com filed for Chapter 11 bankruptcy last week after it became drowned in royalty payments.

Playlist, a site which hosts on-demand music for users to share and generate playlists, is mired in debt. The company owes more than $24 million to major labels and $1.68 million to indies in royalty costs. Additionally, its bandwidth bill alone for providing free online streaming comes to $803,470—not exactly a sustainable financial picture.

After settling a lawsuit with Universal and WMG in May and battling the RIAA and nine other labels for mass copyright infringement, it appeared Playlist had finally worked out its licensing deals with the majors. But by that time, the company had perhaps suffered too much loss, especially after subsequent bans from MySpace and Facebook.

Playlist is certainly not the first streaming service to struggle to keep up with royalty payments. Last year, a similar music service called SeeqPod shuttered its doors after building a library of 13 million tracks. Streaming songs for free was costing MySpace up to $10 million per month, until it decided to disable auto-play to reduce costs. And even successful services like Spotify have struggled to land a U.S. deal with major labels for royalty payments. In April, it surfaced that after receiving 1 million plays of her hit song "Poker Face," Lady Gaga had only earned just $167 from the service.

Perhaps this is why Apple, after teasing many for so long with a possible streaming service, is now rumored to be heading toward a social "sharing" service instead.

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