The search giant is working on a new service that will provide searchers with streaming music, which sounds a whole lot like a content play at first blush. But Google will only be offering limited bits of music, and it will be relying on other companies to actually provide the tunes.

Sources describe the service, which they refer to as “One Box,” as a refined set of answers for music queries. The idea: Punch in, say, “Madonna,” and you’ll be presented with one or more songs, which may be partial clips or full-length versions, then guided to other sites where you can purchase the music.

That is: If you’re looking for Google (GOOG) to launch a rival to Apple’s (AAPL) iTunes or to music streaming services like iMeem and MySpace Music, this isn’t it.

In fact, Google is actually partnering, in a way, with News Corp.’s (NWS) MySpace: iLike, the music start-up that MySpace purchased earlier this year, is one of the two services providing music to Google, industry sources tell me. The other is Lala.com, which has a novel streams-plus-cheap-songs concept. (This is presumably one of the “big announcements” Lala founder Bill Nyguen was referring to yesterday when I spoke to him).

UPDATE: Streaming music service imeem will also be providing songs for the new service, I’m told by people familiar with Google’s plans. It’s unclear to me whether the company will provide full streams in search results. No comment from Google, Lala, MySpace or Imeem. Or the labels, for that matter.

At this point I’m not clear how Google and the labels will determine how much of a song a searcher will be able to listen to. Last I time I checked, iLike didn’t have the ability to provide full song streams at all. And Lala’s licenses only allow the service to provide listeners with a full song once–after that, they have to purchase the track from the service.

One other note: “OneBox” is the name of an existing Google feature that offers up not just links, but actual answers to certain queries. (Think of weather, or stock results). So while it’s possible that Google intends to brand the service with that name, I wouldn’t be surprised if this was the term the company has been using internally and with the labels, and that the service will have a different name when it launches.

TechCrunch first reported about the service this morning.

Don’t get me wrong: Google’s (GOOG) video site still appears to be the only place to see Letterman’s jaw-dropping admission that he has had affairs with staffers on his show and that a CBS (CBS) employee attempted to extort him with that information.

Those clips aren’t supposed to be there, and CBS and YouTube keep taking them down, but people keep uploading them. Here’s one that appears to come from a Portuguese user, for instance.

But I had a hunch that the story, which involves a man who has been on late night TV longer than many YouTube users have been alive, might not resonate with the site’s core demo. And data from video-tracking service TubeMogul make me think that’s the case. Here’s the report I got from TubeMogul marketing director David Burch:

Pirated versions only racked up 130,624 views throughout the day, mostly because CBS didn’t post an official version of the clip and was issuing take-down orders (they had already removed five versions of the clip by the time we ran our first report this morning). By way of comparison, pirated clips of the UFC Kimbo Slice fight totaled 1,074,531 views in the past 24 hours.

Oddly, CBS News’ channel released four news videos about the story today, but youtube.com/cbs only had Letterman’s Madonna interview rather than the clip everyone actually wanted to see.

Never heard of Kimbo Slice before? Like Fred, he’s yet another YouTube sensation, albeit one who’s graduated to TV.

Last December, talks between Warner and YouTube to renew a licensing deal broke down, and Warner’s videos disappeared from the world’s largest video site. Now, as Advertising Age has reported, an agreement is in the works that will bring Green Day, Madonna and their label-mates back to the site.

What hasn’t been reported, so far: The deal terms themselves. Neither company is talking, but sources familiar with the negotiations tell me the new pact will be similar to the one Google’s (GOOG) video unit struck earlier this year with Universal Music Group.

That deal created Vevo, a sort of “Hulu for music videos,” owned by Universal and Sony (SNE). So think of Warner’s deal as a “son of Vevo.”

The big idea is the same: Try to create more value for videos by limiting their distribution and creating a more ad-friendly atmosphere around them, and share ad revenue between YouTube and the videos’ owner. The big points:

• Unlike Vevo, Warner and YouTube won’t be creating a separate site for Warner videos, and Warner won’t be creating a separate company dedicated to its videos. Instead, YouTube will help Warner create a “premium advertising platform” for its videos within YouTube.
• Warner will take primary responsibility for selling its videos, and YouTube will receive a cut of the revenue.
• Warner will no longer receive a licensing fee each time one of its videos is played.

I gather that a lot of this is still being hashed out, and some of this will evolve even after the deal is inked. For instance, Warner needs to figure out how it’s going to sell advertising for its clips, since it doesn’t have its own sales force. Timing is also up in the air: Even after the two sides formally announce the pact, users shouldn’t expect to see Warner videos instantly reappearing on YouTube; it may be that they only get rolled out as the new ad platform is built.

Then there’s the ad platform itself: I haven’t been able to get a concrete definition of what this is supposed to look like, but for now, I’m imagining something like the “channels” YouTube has made for partners like ESPN, except they’d be made on an artist-by-artist basis.

All in all, this sounds like a fair deal. Warner loses a guaranteed revenue stream, but if its contention about the value of its videos is correct, it will make even more than it did under the old arrangement. Meanwhile, YouTube gets to hang onto “premium” inventory without being locked into the kind of  pay-per-play arrangement that helped drive the site’s expenses sky-high.

The potential downside for YouTube: If this works–or if the Vevo deal works–it will have to create similar packages/portals/platforms to retain or attract other “premium” content suppliers, like, say Hollywood studios. But given that the site has had limited success getting those guys on board so far, that’s not the worst fate in the world.

In the meantime, even though Green Day is Warner act, you can still find plenty of its clips on YouTube–it’s just that most of them are odds and ends like this grainy concert video:

Who actually made the move to drop the label’s content from the world’s biggest video site is a matter of dispute, though. Both sides are taking credit for the decision.

Here’s Warner Music (WMG)’s statement:

We are working actively to find a resolution with YouTube that would enable the return of our artists’ content to the site. Until then, we simply cannot accept terms that fail to appropriately and fairly compensate recording artists, songwriters, labels and publishers for the value they provide.”

But a person familiar with the situation tells me that the two companies were close to an agreement until recently, when Warner changed its terms. In response, Google (GOOG) made the move to yank the label’s content.

Google’s blog post about the matter is more oblique. But note that it doesn’t say it is taking the music down at Warner’s request:

Sometimes, if we can’t reach acceptable business terms, we must part ways with successful partners. For example, you may notice videos that contain music owned by Warner Music Group being blocked from the site.”

As I explained yesterday, music videos are some of the most popular content on YouTube. But the videos are also money losers for the video site because it has to pay the labels each time someone views a clip, regardless of whether it’s generating any revenue. YouTube’s contracts with all of the the big labels–in addition to Warner, it has pacts with Sony (SNE), Universal Music Group and EMI–are set to expire in the near future, so there are multiple games of chicken to watch here.

Meanwhile, taking down an entire music company’s catalog can take quite a while, which means that if you head to YouTube right now, you can still find plenty of Warner stuff  there–like the Madonna channel, which has golden oldies like this one:

In addition to myriad rock star perks you’ve already heard about, here’s another one to add to the list: Better stock deals. At least when you’re talking about stock in concert promoter Live Nation.

The company spun off from the radio and billboard giant Clear Channel a couple years ago and has been trying to lock up big name artists to exclusive deals by shoveling tons of loot their way. Madonna, U2, Jay-Z and others have gladly accepted pacts that pay them hundreds of millions of dollars to work exclusively with the company.

Some of those payments have been in stock, which is supposed to indicate that the company and the music acts are all in the same boat. And since Live Nation (LYV) shares have gotten pummeled, you’d think those music acts would be hurting too. Nope.

The Wall Street Journal:

Live Nation had guaranteed that U2 would receive $25 million for 1.6 million shares. But the current market value was just $6.1 million at the close of trading Wednesday. That leaves Live Nation on the hook for the balance, which the company said Wednesday in a SEC filing it would pay with cash on hand or borrowed money.

There could be more bad news coming from another of the company’s marquee acts: Madonna. In April, Madonna is eligible to sell $25 million of stock under the terms of her contract, even though the stock’s market value has plunged 83 percent since she struck her deal in October 2007.”

That’s lousy news for Live Nation shareholders. U2’s cash-out put even more pressure on the stock (the company is selling 1.56 million shares of its own to help pay for U2’s deal), and news of the Madonna deal will do the same.

The bigger question is whether Live Nation’s strategy ever made sense: It was supposed to use the big name acts to help it expand beyond the concert business and into other revenue streams… like selling CDs. Understandable why the company wanted to diversify beyond concerts, which are high-risk, low-margin affairs. But signing big acts to big, guaranteed contracts is one of the things that got the music business in the trouble it’s in now.

But let’s give the old music industry some credit: It did bring us some pretty good music. Here’s U2, circa 1983: