Update: Speaking with MediaNama, Rediff Chairman Ajit Balakrishnan said that Songbuzz is down because Rediff’s contract with T-Series is over, and “we’re not renewing that because of the cost.” 80 to 90% of Songbuzz was from T-Series, and Balakrishnan said that it is extremely risky in India for Rediff to risk a model with user uploads. “It was impossible to license Western Music too – either the economics don’t work out, or you operate a site that has no India links, where users can upload music.”

Balakrishnan said that Songbuzz was marginal to Rediff’s business, but the site had a cult following of a few passionate users.

Yesterday: Rediff.com has pulled the plug on its online music service Songbuzz, according to a note on its website http://songbuzz.rediff.com/. Hat Tip: @umakantsays. The service is being shuttered almost three years after it began, in November 2009.

Rediff’s Songbuzz launch followed that of the launch of a similar service from Web18’s In.com, and was followed with the launch of a number of online music streaming sites launch – Gaana.com from Times Internet Ltd, Saavn.com*, Dhingana.com, among others. A few online radio sites have also cropped up – including Radiowalla, Planet Radio City, and Radio One. Hungama also allows music streaming. Online retailers like Flipkart and Infibeam have launched music download services, and iTunes recently launched the iTunes store in India.

At the time that Rediff Songbuzz was launched, online piracy was rife, and music licenses were expensive. Since then, the music industry has tried hard to shut down piracy sites – around 104 sites were shut down following a Calcutta High Court order, there are online music streaming licenses, though we don’t know if they’re standardised.

On the monetization front, sites like Dhingana and Saavn now have online advertising, having recently launched their ad platforms, and Gaana.com tried to monetize through a mix of branding and integration of ringbacktone downloads with Airtel.

The monetization part of this business is yet to be figured out, but it is likely that the cost of music licensing for the Internet will change. Why? Because one key avenue for monetization for music – mobile VAS – is currently under tremendous pressure due to the enforcement of TRAI guidelines. With VAS companies unwilling to pay minimum guarantees, there is bound to be pressure for monetization through other means, which means that music labels might be more willing to allow streaming at lower costs, with the intent of creating a market for more and more music streaming services.

So, this begs the question: with the market on the verge of a shift, why is Rediff pulling the plug on Songbuzz? We’ll update when we have a response from Rediff.

Disclosure: Saavn is an advertiser with MediaNama