Listen.com to Lay Off 25% of Staff in Restructuring

Internet music search engine Listen.com said Wednesday that it will lay off 42 workers, or about 25% of its staff, as part of a restructuring against the backdrop of competition from song-swapping software firm Napster Inc.

Privately held Listen.com, whose investors include five of the world’s largest record labels, said the staff cuts reflected its strategy of focusing on the licensing of its online music directory. The company said it expects to reach profitability next year.

The music industry has been transformed by the advent of file formats such as MP3, which allow songs to be downloaded from the Internet in small, easy to copy files.

The San Francisco-based company provides a directory that helps users find licensed digital music files on the Internet. The company licenses its search engine technology to other Web media networks.

Listen.com also has launched a Web radio service. Spokesman Sean Garrett told Reuters his company ran into stiff competition from Napster, a free service that allows users to search and download music from other people’s computers.

The five major record labels--Time Warner Inc.’s Warner Bros. music group; Sony Music Entertainment; Vivendi Universal’s Universal Music Group; BMG, the music unit of Bertelsmann; and EMI Group--say Napster needs a license to provide such a service and are suing to shut it down. Napster has argued it does not need such licenses.

“We can’t provide as complete a directory as Napster,” Garrett said. “You can find almost anything through Napster. But what we can do is help you find the best of what’s out there.”

By limiting its editorial services to what it deems the best rather than the most complete, the company is able to reduce its staff, Garrett said.

If Napster, or other similar free services, were to eventually reach agreements with the major labels, Garrett said, Listen.com would seek to partner with such companies to provide search engine technology.

“The realities of the market, the changes in our business model and the need to minimize the time it takes to reach profitability all factored into this decision,” Listen.com Chief Executive Rob Reid said.

Listen.com is the latest in a long list of Internet companies that have cut staff in recent months as investors demanded profits in a slowing economy.