Welcome back to Weekend Update, where we showcase some of the highlights from this site over the past week.

In the umpteenth round of the old media versus new media match, the Associated Press in its annual meeting this week played into the stereotype of the grizzled no-nonsense editor who shakes his fist at the new interweb thing (or was it intertube?) and its feisty friend Google News, who are running amok on his lawn. In addition to trying to “protect news content from misappropriation,” AP board chairman and MediaNews group CEO Dean Singleton emphasized that print was the “meat,” while online was merely the “salt and pepper.” Unimpressed, BoomTown thought Singleton was singling out the steak while missing the sizzle.

In response, Google (GOOG), or He Who Was Not Named, posted a polite, if rather ambiguous, statement on its public policy blog, which was just begging for translation. Also doing some interpreting of his own, AP executive Jim Kennedy spoke with MediaMemo on just what all the fire and brimstone was about. In quieter newspaper-related news, The Wall Street Journal continues on its quest to spread pay content online, possibly through niche content, according to WSJ.com Executive Editor Alan Murray. Also experimenting online is the recently opened news Web site, True/Slant, a heady combination of journalism, social networking and advertising.

Another news item that’s gotten people talking is the fallout from the collapsed IBM-Sun merger, aka Sun pulls a Jerry Yang. (Oh Jerry, the Internet kids because it loves… loves to kid! Pwn-age.) Following the news of the collapse, Sun (JAVA) shares dropped more than 27 percent, leading analysts and Digital Daily to predict difficult times ahead for the company, here and later here as the stock continued its fall over the week. Besides quashing its own stock price, Sun also quashed rumors that chairman and co-founder Scott McNealy would replace CEO Jonathan Schwartz.

Other nonthematic highlights this week:

BoomTown got the exclusive on the anticipated talks between Yahoo’s (YHOO) Carol Bartz and Microsoft’s (MSFT) Steve Ballmer in which the two CEOs discussed the possibility of a search and advertising partnership. Speaking of exclusivity, Google and Microsoft like totally want to be Twitter’s new bff, or maybe go steady if Twitter’s interested.

Digital Daily ruminated on speculations of Time Warner (TWX) doing an AOL spinoff, especially after its hire of former Google exec Tim Armstrong and its attempts to amend debt agreements as per an SEC filing. Also in the rumor mill: The iPhone 3.0 may support onboard video editing. Less of a rumor and more of a slap in the face, to Apple (AAPL) at least: Elan Microelectronics has taken off the gloves (and taken up the lawsuit) because it believes that Apple’s products infringe on its touchscreen patents.

MediaMemo goes over the facts about Vevo, the new online music video hub that’s a partnership between Google’s YouTube and Vivendi’s Universal Music Group, with interesting ramifications for both. Meanwhile, iTunes has put in place its new tiered-pricing system, in which songs will now cost 69 cents, 99 cents, or $1.29. But in a question that shocked no one: Where are the all the lowest-tier songs? Don’t worry your pretty little heads, said Big Music, they’re on their way.

In a new Mossblog, Walt Mossberg reports from the battlefield of the growing Smartphone Wars, in which iPhones, BlackBerries and others are engaged in mortal combat. In the Mossberg Solution, Katherine Boehret reviews BumpTop, an application that takes your flat, plain old X-Y plane of a desktop to the next dimension, that is, the third dimension.

More next week!

At issue here was whether the sale of digital music downloads falls under the “distribution” agreements that cover physical releases like CDs. FBT argued they do not, claiming that the label incurs none of the costs typically associated with them–things like CD jewel cases and inserts, breakage fees and in-store displays. Instead, the production company said that downloads should be covered by “licensing” agreements that don’t include such expenses. And the difference between the two is significant: Under distribution deals, artists typically take a 30 percent split of royalties earned. Under licensing deals, they take 50 percent.

But the jury didn’t quite see things FBT’s way and instead bought Universal’s argument that the economics for digital downloads should be viewed as similar to those of the single. A nasty blow to FBT and other artists hoping to see their royalty rates adjusted to account for the new economies of distribution provided by digital music storefronts. Seems that much as technology has changed the relationship between musicians and their fans, it’s done little to change the one between musicians and their labels.

At issue here is whether the sale of digital music downloads falls under the “distribution” agreements that cover physical releases like CDs. FBT says they do not, arguing that the label incurs none of the costs typically associated with them–things like CD jewel cases and inserts and in-store displays. Instead, the production company says that downloads should be covered by “licensing” agreements that do not include such expenses. And the difference between the two is significant: Under distribution deals, artists typically take a 30 percent split of royalties earned. Under licensing deals, they take 50 percent. “If you give the music to a third party without cost to you, like manufacturing or packaging, that’s the same as a licensing agreement,” a source close to the case told The Wrap. “[Universal] are characterising it as something else.”

Universal, of course, disagrees. It claims the sale of a digital download is no different from the sale of a CD. But it seems to be having a tough time supporting that argument in court. To wit, this exchange between FBT attorney Richard S. Busch and Lawrence Kenswil, the former head of UMG’s e-commerce arm, eLabs.

Busch: “Universal provided two digital files to the download companies–a master recording and a metadata guide setting forth a procedure for getting the music on their system. With the digital download agreements–Universal has no manufacturing costs connected with that, correct?”

Kenswil: “Generally, that’s true. But it has costs. You don’t call them manufacturing costs the way that term has been used traditionally. Manufacturing costs are for physical costs, and that has gone away.”

This morning the company announced slotMusic, a compact memory card-based music format that can be played on cellphones, PCs and some MP3 players. It relies on MP3s without digital rights management schemes and is backed by Universal Music Group, Sony BMG Music Entertainment, Warner Music Group and EMI Group, all of which apparently believe that more physical media is the best way to reinvent their business model in the era of digital distribution. Though as SanDisk VP Daniel Schreiber notes, they do have their reasons. “There’s a billion phones out there and a lot of them can play music and a lot of them have a microSD slot,” he explained. “We think there’s still a need for a tangible, physical product. People will appreciate walking out of the store playing music on their phones.”

Perhaps. But will they appreciate carrying that music around on a 0.6″ x 0.4″ medium that’s about the size of a fingernail? Seems easy to lose, doesn’t it (maybe Case Logic is planning a slotMusic binder)? And wouldn’t they rather carry around hundreds of songs, instead of the dozen or so stored on each slotMusic card? And what if the memory card in their phone is already in use, filled up with contacts, applications and other data? What then? And beyond this, haven’t iTunes and Amazon MP3 made consumers more accustomed to purchasing music à la carte? Why purchase a full album at $15, when all you really want are the only two good songs on it?

This morning, Sony BMG became the second record label to jump on board the Finnish phone giant’s Comes With Music offering, which–when it launches in the second half of 2008, will package mobile phones with a year of unlimited access to music. There are, however, certain caveats to that value proposition, as I pointed out last December:

Though Comes With Music does indeed permit owners of certain Nokia cellphones to download as many songs as humanly possible in one year (with no per-song data charges), transfer them to a PC and keep them at the end of that time, they must pay a per-song usage fee to burn them to CD. What’s more, the songs are wrapped in Microsoft’s (MSFT) ironically named ‘Plays for Sure’ digital-rights management scheme, which prevents them from being played on the iPod, Zune, etc. Finally, another 12 months access to the music catalog requires the purchase of a brand new phone.”

Clearly, Sony, like Universal (VIV.PA) before it, doesn’t see these issues as off-putting to consumers. “When you give consumers the key to the candy store without any limitations, there’s a lot more opportunity for discovering music that you might not have found before,” said Thomas Hesse, president of global digital business and U.S. sales for Sony BMG Music Entertainment. “We think this will energize the discovery of music.”

It might energize Sony BMG’s bottom line a bit as well. When Universal first signed up for Comes with Music, sources close to the company said that Nokia would pay the label up to $35 for every phone that offers access to its library. Nokia subsequently denied it was paying that amount, but it’s definitely paying something–to Universal, Sony and whatever other labels it manages to line up for the service.

It’s not clear which aspect of Total Music has piqued the Justice Department’s interest, though it’s likely concerned that participating labels might collude to set wholesale music prices. And for good reason–the major labels were found guilty of wholesale CD price fixing back in 2000.

Really, an album that someone worked on for two years–is that worth only $9, $10, when people pay two bucks for coffee in Starbucks? People never really understand what’s happening to the artists. All the sharing of the music, right? Is it correct that people share their music, fill up these devices with music they haven’t paid for? If you had Coca-Cola coming through the faucet in your kitchen, how much would you be willing to pay for Coca-Cola? There you go. That’s what happened to the record business.”

–UMG CEO Doug Morris, Wired, Nov. 27

Offering its entire catalog of digitized video and music for free to the 19 million users of an upstart social-networking site was once about the furthest thing from Universal Music Group’s mind. Now, with the Internet rejiggering the music industry’s economic structure, it’s at the very top of it.

And so this morning, UMG said it would allow members of social network Imeem to stream its music for no charge, in exchange for a cut of the revenue from advertising aired while songs are playing. “Imeem has developed an innovative way to make our artists’ music a central part of the social-networking experience,” UMG CEO Doug Morris said in a statement. “They’ve done so the right way–by working with UMG to provide an exciting musical experience for consumers, while ensuring that our artists are fairly compensated.”

And ensuring that UMG is fairly compensated as well. As part of the deal, the company will get an equity stake in Imeem and is rumored to have received an upfront payment of more than $20 million.

UMG is the last of the ‘big four’ major labels to ink such a deal with Imeem, following in the footsteps of Warner Music Group, Sony BMG and EMI. All four majors–quite an achievement for a company that this past summer didn’t have a deal with any of them. Seems the music industry isn’t quite as wary of advertising-supported business models as it once was. “2008 is going to be the year of music labels trying to put themselves in front of everyone, no matter what business model it takes,” Forrester analyst James McQuivey told CNNMoney. “The labels have realized that you have to be everywhere on the Web, because the customer is everywhere. You need to put yourself in front of them when they make their entertainment decisions.”

Though “Comes with Music” does indeed permit owners of certain Nokia cellphones to download as many songs as humanly possible in one year (with no per-song data charges), transfer them to a PC and keep them at the end of that time, they must pay a per-song usage fee to burn them to CD. What’s more, the songs are wrapped in Microsoft’s ironically named “Plays for Sure” digital rights management scheme, which prevents them from being played on the iPod, Zune, etc. Finally, another 12 months access to the UMG catalog requires the purchase of a brand new phone.

All of which makes perfect business sense–after all, Nokia’s not in the business of giving away music–though it certainly would like to be perceived that way from the looks of the company’s press release. “This is how the consumers will consume music going forward. This is a step toward where this business we believe will be moving to in two to three years time,” Rob Wells, Universal’s SVP of digital, told Reuters. “Consumers will have access to all the recorded music available through the price of the device, or the price of service, or the price of broadband.”

And they’ll pay an additional price to use it as they see fit.

Doug’s a very special guy. He’s the last of the great music executives who came up through A&R. He’s old school. I like him a lot.”

–Apple CEO Steve Jobs on Universal Music Group CEO Doug Morris

The per-device royalties Universal Music Group receives for every Zune player sold were apparently substantial enough to buy CEO Doug Morris a bigger set of balls, because he’s out drumming up support for an industry-owned subscription service with which he hopes to loosen Apple’s grip on the digital music market.

The endeavor is called “Total Music,” and Morris has already approached Sony BMG Music Entertainment and Warner Music Group about participating. His proposition: a subscription-based music service for the hardware industry, one whose cost could be baked into the hardware that supports it. Under the Total Music model, hardware makers subsidize the cost of music, which consumers are then given for “free” when they buy a new digital media player. That’s more money up front for hardware makers, but it’s a wise investment because, as Morris reckons, they’ll make that money back and then some by selling many more devices.

Interesting business model. “If the object is to wrest control of the market from Steve Jobs,” said Gartner analyst Mike McGuire, “this is a credible way to try it.”

Sadly for Morris, it’s also one inevitably complicated by recent turmoil in the music industry. With Radiohead releasing its latest album as a pay-what-you-will digital download, Nine Inch Nails declaring itself a free agent, and Madonna about to dump Warner Music Group for a concert promoter, we’re clearly seeing a sea change in music discovery, distribution and consumption, one perhaps lost on an industry so hardened by years of CD price fixing. So while the music industry struggles so to wrest control of the digital music market from Apple, some of today’s biggest popular artists are crafting an entirely new business model.

At a press conference this morning, Vivendi CEO Jean-Bernard Levy slagged Apple, bitching about the company’s retail pricing strategy for its iTunes service. “The split between Apple and [music] producers is indecent,” Levy said. “Our contracts give too good a share to Apple. … We should have a differentiated price system.”

Vivendi’s Universal Music Group decided against a long-term renewal of its iTunes contract this past summer and has been month-to-month ever since. So it could certainly withdraw its catalog from iTunes if it chose to. But since Apple controls 76% of digital music sales, and some 15% of Universal’s revenue comes from digital sales, it probably won’t. At least not until it finds a digital music-distribution channel as effective as Apple’s. “We are in a phase during which many different actors are talking to each other,” Levy said. “We are trying to put in place several projects to ensure that music is better remunerated. … We are not just talking to Apple.”