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Facebook is in discussions with major record labels to launch a music service on the site, according to sources familiar with the situation.

The discussions with the record labels are being called "preliminary" but record executives said they thought a service would offer users free streams of music, supported by advertising along with the ability to pay for downloads in MP3 format.

Facebook's talks with music labels follow a similar plan by MySpace, which is exploring a possible deal with Sony BMG, Universal Music, Warner Music and EMI. Before finalizing any kind of deal News Corp's MySpace would have to settle a lawsuit filed by Universal Music over copyright infringement.

The music labels are hoping that the possible deals with MySpace and Facebook could offset the decline in sales of physical albums. According to the NPD Group, forty-eight percent of teens did not buy a single CD in 2007, compared to 38 percent in 2006. In addition iTunes became the second largest music retailer in the U.S. behind Wal-Mart.

According to Nielsen, Universal Music had the largest share of the market in 2007 with 31.9 percent, followed by Sony BMG with 24.9 percent, Warner Music with 18.1 percent and EMI with 9.3 percent.

If the music labels can reach an agreement with Facebook it would give them access to the sites 66 million users worldwide and if they could do the same with MySpace they would gain access to the sites 110 million users globally.