• GigaOM, Friday, June 1, 2007 11:15 AM

Why did CBS Corp. shell out a hefty $280 million for a small-time music social networking firm? Pitfalls abound. For one thing, social networking--even music social networking--is crowded. For another, the entire Web radio industry is facing a royalty rate hike of epic proportions.

Many insiders believe the Last.fm deal is somehow linked to the fact that CBS owns 144 terrestrial radio stations in 50 major markets, a business that pulled in $397 million in the first three months of the year. That figure represents a 9% decline from last year.

Indeed, tomorrow's adults are growing up without taking any notice of terrestrial radio. They have their iPods and their social networks and their cell phones, all of which will soon be linked. With Last.fm, CBS Radio at least has something that's growing, social and attracting a young audience. Last.fm's social features are cool--especially collaborative radio--but the prospect of hefty royalty hikes still cloud the operation. But how will users respond to CBS' presence? Several have already expressed their discontent. CBS execs say the plan is to keep their hands off.

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