The music industry loses billions each year on pirated music, so labels are constantly looking for new ways to hold on to their business -- even offering music for free.
Soon, you'll be able to hear the entire music catalogs of labels like Warner and EMI for free, without commercial interruptions, on a social networking site called Cyloop.com.
Cyloop.com, headed by Argentina-born Demian Bellumio, began life as ElHood.com, a social network website geared toward Hispanic musicians. The company changed its name to Cyloop in August with goals to expand globally, including English-language offerings. On Monday, Cyloop.com announced it had signed deals with heavyweights like Warner and The Orchard, which distributes the music of about 6,000 independent labels.
Members can stream as much music as they want and create playlists to save and share with other members. The catch: You have to be logged in to Cyloop.com to play the music. And, forget about downloading the songs to your computer.
The partnership is a new chapter in the evolution of the music industry, as labels are experimenting with new technologies to make up for money lost on in-store album sales and from illegal downloads.
''We want Cyloop to not only be a site, but be a platform that powers the music labels,'' Bellumio said.
Bellumio, 31, said he expects to close a deal with Sony and Universal before the end of the year.
Cyloop allows users to create custom playlists based on the music the site features, and it allows artists to upload and promote their own music.
Cyloop is home to many independent Latin artists; English-speaking artists include Wilco and comedian George Lopez. With a staff of about 70, the company builds profile pages for artists and expects to have 100,000 artist profiles by the end of the year.
Unlike other sites such as MySpace.com, Cyloop users cannot create their own content. That makes Cyloop more attractive to advertisers, who don't want their ads next to potentially risqué content, Bellumio said.
The site is supported by on-screen advertisements, but there are no audio commercials interrupting the music. Billboard now sells the ads for Cyloop in the United States. The record labels split the ad revenue with the site, a new business model for the labels, Bellumio said. Major sponsors include Microsoft and Ford Motor.
Monday's announcement included the news that Cyloop.com will now run the music channel of Terra.es, Spain's leading Internet portal. With roughly 17 million unique visitors a month, according to Bellumio, Terra's traffic can bring a nice boost in advertising revenue to the 1-year-old site.
Bellumio wouldn't reveal Cyloop's traffic numbers but said the target is at least 5 million registered users by next year. As of now, 40 percent of Cyloop's traffic is from the United States.
Music downloads and subscriptions are a $1 billion industry, with subscriptions making up $200 million of that, said David Card, an analyst with JupiterResearch. The biggest successes in the digital music business, he says, ``are the 99-cent singles that you can play on your iPod.''
But downloading isn't growing fast enough to keep up with declining CD sales. Global piracy of recorded music has cost the United States $12.5 billion in economic output and 71,060 jobs annually, according to an August report by the Institute for Policy Innovation.
''If you are a record label or publisher, you need to tap into multiple revenue streams,'' said Card.
But Card said it is too early to guess if this new model will save the industry or match the revenue from digital downloads. And he is skeptical about Cyloop's plans to profit off advertisements.
''Right now no one is spending any money on digital audio ads,'' Card said. ``There's no guarantee that anyone will see those ads whatsoever.''
Bellumio, a former vice president of corporate finance for Terremark, said he doesn't expect the company to be profitable until next year. The company has so far raised more than $11 million in venture capital financing.
The next step for Cyloop is to explore how to get involved in the mobile phone market, Bellumio said. It already started filming webisodes in its new video studio overlooking Washington Avenue in Miami Beach.
He said he plans to use the studio for filming music videos and eventually create a live-audience Latin music show, similar to MTV's TRL.
For artists themselves, social networking sites have become critical to promoting themselves, even if they don't make any money.
Jason Calleiro, 27, who toured the United States and Canada for years with the band Glasseater , said he depended on online message boards for marketing and communicating with fans.
His new Miami-based social networking site, OurScene.com, which launches in a few weeks, will offer artists the chance not only to give away free music downloads, but also to communicate tour dates with fans and sell merchandise -- the real moneymaking paths.
''I definitely think the industry needs to rethink ways of getting income,'' Calleiro said.