By Michal Lev-Ram

HALF MOON BAY, Calif. – Social networking site MySpace will launch a new music service in September,  CEO Chris DeWolfe announced at Fortune’s Brainstorm Tech conference on Wednesday.

The new offering will enable MySpace members to listen to free streaming music as well as purchase song downloads,  ringtones, T-shirts and concert tickets, DeWolfe told an audience of tech executives during an interview with Fortune senior writer Adam Lashinsky.

MySpace – which was acquired by News Corp. (NWS) in 2005 – became a platform for bands to connect with their fans early on, and the company says that 65% of their members currently embed music on their profile pages. But rival social networking site Facebook has begun to overshadow MySpace. According to new numbers from metrics firm comScore, while MySpace still has more users, Facebook is growing at a faster rate. MySpace is hoping the new music service will boost growth.

“MySpace is more about self expression and individuality,” DeWolfe said when asked for his thoughts on Palo Alto-based Facebook. “One of the reasons why we’re investing so heavily in music is that self-expression and music go together so well.”

But MySpace isn’t the only company trying to find new ways to make money off the digital music industry, dominated by Apple’s (AAPL) iTunes.

Robert Kotick, chief executive of game publisher Activision Blizzard, said his company’s popular Guitar Hero game (which lets users play along to their favorite music by pressing colored buttons on a guitar-shaped controller) will soon start selling songs tracks via an iTunes-like music store.

“People are already coming to us for music,” said Kotick, whose Guitar Hero series has reportedly surpassed $1 billion in sales to date. Kotick said that he’s got four or five teams already working on the upcoming music store, but he also added that there are still kinks to work out when it comes to copyright-protection issues.

News Corp. President Peter Chernin says online video is a premium money-making opportunity. Image: News Corp.

By Jon Fortt

HALF MOON BAY, Calif. – Looking at big money-making opportunities online, News Corp. (NWS) President Peter Chernin pointed to video, mobile and overseas markets as good long-term bets.

In an interview with Fortune editor at large Richard Siklos at Brainstorm Tech on Tuesday, Chernin said advertisers still haven’t completely embraced the online opportunity, and that they continue to have a television mindset. He said an advertiser recently told a MySpace sales rep to come back when the social network has a “SuperBowl-level” event. What the advertiser failed to recognize, Chernin said, is that the MySpace homepage has as many viewers every day as the SuperBowl has once a year. (Of course, there’s a good argument that MySpace visitors aren’t quite as engaged with the content as SuperBowl viewers are.)

He also addressed the challenges News Corp. faces in getting a decent price for ads on MySpace. (The company partners with Google (GOOG) to monetize the site.) The answer, Chernin said, may be to look beyond banners and text ads. “What drives ad prices is scarcity,” he said. “The place that is most promising is probably in video. By definition there’s more scarcity in video, and there’s even more scarcity in premium video.”

Mobile is attractive because of its scale. It “is by far the most penetrated device on earth,” he said. “So it’s this enormous distribution platform, but by definition you’re not going to be watching two-hour movies. It’s going to be interesting to see people develop uniquely mobile content.” It will take the medium a long time to develop, he said and predicted that in two years, the industry will still be trying to figure mobile out.

Geographically, Chernin said he expects emerging overseas markets to show faster revenue growth for News Corp. than the U.S. and more developed markets. “We’ve invested in cable channels in all sort of Podunk places.”

By Scott Moritz

In the absence of a bidding war for Yahoo! (YHOO), Microsoft (MSFT) stands pat on its original $42 billion buyout offer.

Seeing no reason to bid against itself, Microsoft looks willing to wait it out, according to a report Tuesday in The Wall Street Journal.

The news comes two weeks after Yahoo argued that it deserved a higher bid in a 37-page presentation that highlighted strong cash flow projections, the comparative value of other Internet deals and the online ad clout the company has here and abroad.

Yahoo shares are up more than 10% since the plea for a higher offer was made public, largely because the company’s financial outlook appeared solid, alleviating concerns that the Net giant was feeling the effects of an economic slowdown.

But no white knight has appeared with a sweeping offer to carry Yahoo away for billions more. Chats with other players like Time Warner (TWX) (the parent of Fortune and CNNMoney.com) and News Corp. (NWS) have lacked the full package that Microsoft offered.

“We still expect Microsoft to raise its bid at the eleventh hour, when the companies are already deep in negotiation, but there is no reason to do it before then,” writes blogger Henry Blodget.

Microsoft seeks Yahoo’s online assets to help it counter the growing threat from Google (GOOG). The Web search giant has targeted Microsoft’s core PC application business with free, often ad-supported network-based software.

By Michal Lev-Ram

After over a year of development, testing and refining, online video service Hulu launches Wednesday and viewers will get to chance to see if it lives up to all the hullabaloo.

A joint venture between News Corp.’s Fox (NWS) and NBC Universal (GE), Los Angeles-based Hulu says it aims to bring together the widest selection of free, “premium” videos on the Web. But unlike Google’s YouTube (GOOG), where unauthorized clips often end up, Hulu’s content is the result of pre-established partnerships with entertainment companies like Lionsgate (LGF) and Sony Pictures Television.

When plans for the then-unnamed site were announced last year, many ridiculed the idea, saying “old media” doesn’t get the Internet. But when Hulu gave select viewers a look at the site, some critics changed their tune. The company received rave reviews for its site’s ease-of-use and simplicity.

The site features more than 250 television shows and 100 full-length feature films from Fox and NBC as well as content from companies like Warner Bros. Television Group (owned by Time Warner (TWX), the parent company of Fortune and CNNMoney). Clips of other shows — including Saturday Night Live — will also be available on the site.

So far Hulu has failed to sign on two other big television networks: ABC (DIS) and CBS (CBS).

Still, industry insiders say the marketing potential of Fox and NBC — makers of hit shows like “Deal or No Deal” and “24″ — is huge.

“The networks have the power to do big things with online video,” says Morgan Guenther, CEO of interactive media startup AirPlay and the former president of TiVo. “If they do it right this thing will definitely have legs.”

Unlike YouTube, Hulu has an ad network already up and and working at launch time, though its lineup of advertisers is still limited. Hulu is experimenting with letting viewers choose which commercials they watch, and doesn’t let them fast forward through ads.

But like its rival YouTube, Hulu is also encouraging viral distribution. People can edit shows down to a few seconds and then e-mail those clips to friends. They can also embed videos on blogs and their MySpace or Facebook pages.