Limewire CEO George Searle announced an ambitious plan to pay rights holders at the P2P Media Summit in Los Angeles last week. His company plans to split the revenue of its upcoming contextual advertising platform with record companies. Labels will get as much as 40 percent of the money Limewire is going to make with Google Adsene-type ads.

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Limewire has been working on integrating contextual text ads into its P2P client for a while now. Searle publicly announced these plans late last year at another DCIA conference in Los Angeles, and he used last week's event to reiterate some of his key points: Limewire's 80 million users generate an estimated five billion search requests each month, putting the P2P client in the same league as search engine giants like Google and Yahoo. In fact, Limewire would be the third biggest search destination in terms of unique users, ahead of Live.com and Ask.com, if it was a website.

Of course, it's not - and that's why it hasn't made any money from this search activity up until now. This however is going to change soon. Searle told his audience in Los Angeles that Limewire wants to incorporate contextual ads into its client within the next month. The ads will be at the top of the search results, but clearly marked as advertising. Ads will initially be used to promote Limwire's new music download store, but advertisers should be able to buy these spots soon as well.

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The advertising program will be run by a separate entity called Fanmedia. It will sell CPC ads against keywords, just like Google does with Adwords. Fanmedia will take a 20 percent cut of the total revenue per click and then pass on 40 percent to Limewire and 40 percent to the rights holder associated with the ad in question. So if someone buys an ad for a Ladytron ring tone (you know you'd want one) and pays a dollar per click for it, then Ladytrons's label would get 40 cents for every click. "This is the first time that revenue would be shared with rights holders", Searle told me after his presentation.

Of course, not all of the rights holders will be on board. Limewire was sued by the major recored labels in late 2006. Many other P2P compaines decided to settle and fold in face of such a lawsuit, but Limewire seems determined to battle it out and has been significantly expanding, starting new ventures like the Music Store and the social publishing platform Limespot.

Searle conceded that Fanmedia will have to do with what he called "participating rights holders", meaning indie labels. The promise of additional income should certainly help to close those deals. And Searle believes that there's enough cash to be made for everybody with systems like Fanmedia. Contextual advertising could eventually become bigger than the entire music business, he said.

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Part of the plan is to eventually expand the ad network beyond the Limewire client to other P2P clients and even websites like music blogs and social networks. One can imagine that Limewire will test this on its own web properties first. The company not only has a social network for bands and musicians in the making, but is also running a reasonably popular blog about New York's indie music scene.

Finally, Limewire is also working on a UI redesign, and the new client will apparently include a web browser. This certainly makes even more sense in light of its contextual advertising plans, and it will be interesting what the company comes up with. Searle said the new UI would come "hopefully this year".

Check out more photos from Searle's presentation below.

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