• by Wendy Davis , Staff Writer @wendyndavis, April 3, 2008

MySpace today said it will enter the increasingly crowded digital music business with a new service, MySpace Music, that will offer free streams and sell downloads of tracks without digital rights management software.

Three of the major four record labels -- Sony BMG, Warner Music Group and Universal Music Group -- are partnering with the social networking site in the initiative. Lone holdout EMI, which recently poached Google vet Douglas Merrill to head up digital strategy, might join later.

With the move MySpace is directly challenging iTunes -- now the leading music retailer, accounting for 19% of U.S. sales, according to Ars Technica. Apple has zoomed past brick-and-mortar stores like Wal-Mart (15%) and Best Buy (13%), and is still far ahead of Amazon.com (6%), Ars Technica reports.

If MySpace is able to carry out its promise of selling DRM-free tracks, the company will have at least one major advantage over iTunes, which still mostly sells tracks encoded with Apple's Fairplay software. Currently, it's not easy for users who who buy DRM-bundled tracks on iTunes to transfer them to devices other than iPods. But the MySpace service should enable people to freely transfer music between computers and devices -- which is only good news for consumers.

The decision to sell DRM-free tracks also appears to mark a further acceptance of the benefits of digital media on the part of the record labels. Despite their mistrust of file-sharing services, the record executives have to realize at this point that consumers who purchase a track from one online music store want to be able to listen to that track on their choice of portable devices.

In another sign of detente between the labels and Web companies, MySpace also said today it has agreed to settle a lawsuit brought by Universal Music Group. The record label had accused the social networking site of copyright infringement because some members uploaded Universal clips to their profile pages. Terms of the settlement were not disclosed.