In a direct assault on Apple's iTunes music store, MySpace today launched a new digital-music joint venture with three of the four major record companies that will allow users to stream songs from the labels' catalogs for free.

The deal marks a truce between the major labels and the giant social-networking site, which is owned by Rupert Murdoch’s News Corp., as well as showcases the music industry's apparently newfound willingness to explore emerging business models.

With the imprimatur of Sony BMG, Universal Music Group, and Warner Music Group, which will own minority stakes in the venture, MySpace's new service poses a direct threat to Apple's iTunes music store. MySpace has more than 100 million unique monthly visitors worldwide, many of them in the music industry's demographic sweet spot: teenagers.

Having a distribution channel as vast as MySpace gives the labels a major leg up in negotiating with Apple in the future and makes it more likely that Steve Jobs & Co. will have to accept some of their demands, including variable pricing, which has long been a sore point.

"CD sales have been going down for several years, and those revenues need to be replaced," MySpace C.E.O. Chris DeWolfe said in an interview with Portfolio.com. "We went to the music companies and said, 'Here's what we want to provide. Let's collaboratively build a business model that works for you guys and that works for us.'"

MySpace and the labels agreed on a model that will offer users free, ad-supported streaming music from the labels' catalogs, as well as MP3 downloads for purchase. Sony BMG, Universal Music Group, and Warner Music Group will have a joint stake along with News Corp. in the venture, to be called MySpace Music.

DeWolfe said that MySpace Music differs from iTunes because users "can listen to any song in the catalog for free on MySpace" on a streaming basis, supported by advertising.

Users can also pay to download DRM-free tracks, but the company is still working out the cost per track. DeWolfe said that MySpace is considering variable pricing, as well as charging users a flat monthly fee in exchange for an all-you- can-eat monthly download option, "but it's not in the product pipeline right now."

The service will be rolled out during the next several months, first in the U.S., then globally.

As part of the deal, Universal Music Group—the largest record company in the world—has agreed to settle its 2006 lawsuit against MySpace, which accused the company of infringing upon the label's copyrights.

DeWolfe declined to comment on the specifics of the settlement, but Silicon Alley Insider reported that Universal will receive a "huge" cash payment in return for settling the lawsuit, "perhaps in the $100 million range."

DeWolfe said that the service will also offer music-related items for sale, including concert tickets, ringtones, and T-shirts, creating what he called a "360-degree revenue stream and experience for the user."

"In the past, the music industry has done a great job of finding new artists and turning them into big brands, but they've only really capitalized on CD sales," DeWolfe said. "What we're doing is monetizing that brand in five or six different ways."

Although EMI has yet to sign on to the plan, DeWolfe said, "We hope to have everyone on board."

 After years of taking a litigious approach to the growth of online music distribution, including filing thousands of lawsuits against individuals and companies, the recording giants are starting a radical and likely painful transformation.

Ideas once considered anathema to the industry are now on the table, including Warner Music's nascent, but instantly controversial, plan to bundle a monthly fee into internet-access charges, creating a pool of money to be distributed to artists and rights’ holders.

The Times of London reported this week that Warner is in talks with the major internet service providers in Britain to develop such a model.