Lime Wire signs Lewis Black's record label
The renegade file-sharing service will sell Comedy Central albums in its download store. Will the major labels be next?
NEW YORK (Fortune) -- The world's biggest record companies would love to shutter Lime Wire. They say the popular file sharing service has built a lucrative business by enticing users to illegally swap the latest hit songs without paying a dime.
But not everybody in the entertainment business sees Lime Wire as a pariah. On Wednesday, Lime Wire announced that it had struck a deal with Viacom's Comedy Central to sell the cable network's library of 60 digital comedy albums by guys like Lewis Black, Denis Leary and Dane Cook in its download store.
This is a coup for Lime Wire, which is trying to shed its outlaw image and become a legitimate digital entertainment provider. As part of this campaign, Lime Wire in March launched a download store where users can purchase songs from small, independent labels like Kanine Records and Ghostly International for 99 cents.
The pact with Comedy Central is Lime Wire's first partnership with a major entertainment company. George Searle, Lime Wire's CEO, said it shows that his company actually has something beneficial to offer its adversaries in the entertainment industry.
"What's happening at Lime Wire right now represents a unique opportunity for content owners," he said. "Comedy Central Records sees this."
Comedy Central says it had reservations about working with Lime Wire. The cable network is a division of Viacom (VIA), which sued Google's (GOOG, Fortune 500) YouTube last year for allegedly allowing users to illegally post clips of Comedy Central's "South Park" and "The Daily Show with Jon Stewart," among other things.
"We find file-sharing and free downloading as objectionable as anybody," says Jack Vaughn, head of Comedy Central Records.
But Vaughn said his label also wants to do as many deals as it can with online music services to increase its digital sales: "We looked at the Lime Wire Store, and we said, 'Are they going to pay? Are they going to pay on time, and are they going to expose our artists to a new audience?' The answer was yes."
Lime Wire still has a long way to go in its quest for legitimacy. It is defending itself against a federal suit filed two years ago by a coalition of major labels, led by SonyBMG's Arista Records, who accuse Lime Wire of encouraging its 70 million users to rampantly violate copyright law.
Lime Wire executives insist that the company is not responsible for the behavior of its users. They also counter that the labels are missing a golden opportunity by fighting with Lime Wire rather than tapping into its user base.
The file-sharing service is trying to get the big four record companies - Universal, Warner Music (WMG), EMI and SonyBMG (SME) - to join up with it and create a Google-like ad-supported music search engine that Lime Wire argues would be extremely profitable.
Surely, Lime Wire is in a persuasive position in the wake of the Comedy Central deal. "It's another indication of the speed at which traditional media companies are evolving and evolving their thinking about the Internet," says Eric Garland, CEO of Big Champagne, a digital media analytics company. "Eighteen months ago, I don't think you would have seen an announcement like this."
Searle agrees: "I'm very optimistic. The problems and opportunities facing digital media right now lie squarely with providing the right offering to the right consumer. We're working hard to help [big entertainment companies] do just that."