Gracenote will announce next week that it has compiled the first large-scale group of music lyrics licenses, finally opening up a potentially lucrative market with the blessing of music publishers.

Lyrics have until now not been legally available for inclusion in download stores, search engines, and devices. That hasn’t stopped non-licensed sites from filling users’ desires to find out what artists are singing, much to the chagrin of music publishers, who don’t like other people selling ads against their copyrights.

Emeryville, California-based Gracenote, which has been working to acquire rights to lyrics for the last three years, said this week it will launch a lyrics service in 2006.

The company will be able to sell the product through partners, with the lyrics information either stored locally or streamed online. That could be on a PC, a portable device, on a home server, or included in a search engine.

Gracenote, which has raised $36 million in venture capital, hopes to sign on existing customers, including Apple, Yahoo, Samsung, and Sony.

The company has acquired rights to use lyrics of BMG Music Publishing, Universal Music Publishing Group, Sony/ATV Music Publishing, Peermusic, and Famous Music, among others. It still lacks deals with major players such as EMI and Warner.

Unmet Demand

The demand for lyrics is quite strong. “Lyrics” was the twelfth-most searched term across all engines for the last four weeks, with only variations on the terms MySpace, eBay, MapQuest, and Yahoo above it, according to U.S. research firm Hitwise.

Though music publishers weren’t happy with the proliferation of unlicensed lyrics sites, they had not yet banded together to make lyrics readily available.

“We’ve been in a real catch-22 situation,” noted Nick Firth, chairman and chief executive of BMG Music Publishing, which has signed with Gracenote. “It’s kind of difficult to go after the illegal sites when you haven’t got a legal alternative.”

Gracenote, which has relationships with nearly everyone in digital music, emerged as the player to bring everyone together. The company quietly rose to prominence over the last decade with its media database, which allows media software and devices to recognize the titles of CDs and DVDs.

Gracenote’s other products and projects, which are all produced through partners, include voice-controlled music devices, music recommendations, and audio recognition software. The latter could allow a cell phone held up to a speaker to use such audio recognition software to retrieve the title of a song playing.

Gartner analyst Van Baker had kind words for Gracenote’s efforts, saying they should increase music discovery and purchases.

“If people can go to Napster or Rhapsody and type in the lyrics to the song they heard a minute ago, they’re probably going to buy it,” he said.

Previous Tussles

Despite a flare-up last December over a piece of software called pearLyrics (see Labels Target Lyrics Sites, Warner Changes Tune on Lyrics), music publishers say they aren’t going after unlicensed lyrics sites.

Lauren Keiser, president of the U.S. Music Publishers’ Association, said he knew of a couple of other organizations besides Gracenote who were trying to tie up lyrics-licensing deals. “We understand the need for lyrics,” he said. “We do want to make lyrics available legally as an industry.”

“For lyrics, we are looking at legal alternatives,” said Mr. Keiser. “As far as guitar tab and sheet music sites, both the National Music Publishers’ Association and my group have started sending take-down notices to certain sites and they are going down.”

Challenges Ahead

Meanwhile, all those lyrics aren’t being freed from a locked box. Rather, publishers are providing what they have available and Gracenote is using editors to check accuracy and fill in the blanks.

“This content doesn’t exist in a library,” said Jim Hollingsworth, Gracenote’s senior vice president of sales and marketing. “This is a painstaking process.”

“A lot of the assets of media companies, especially back-catalog assets, are still sitting around on 3-by-5 cards somewhere,” Mr. Baker said.

Gracenote said it hopes to sign on hundreds more publishers, large and small. Mr. Hollingsworth would not say how what portion of the company’s resources or revenues were expected to be involved with lyrics, though he called the effort a “multiyear, multimillion-dollar project.”

Contact the writer:LGannes@RedHerring.com