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Project Playlist, an interactive streaming music site and application provider on social networks, has raised nearly $20 million from the Pilot Group and brought on former Facebook executive Owen Van Natta as its new chief executive.

Van Natta, who held positions like Chief Revenue Officer and Chief Operating Officer at Facebook from its early days until last February, was also an early investor in Project Playlist. After leaving Facebook, he was reportedly in the running to be chief executive of MySpace Music. That may have conflicted with a separate, aborted move by Project Playlist to sell itself to MySpace.

While at Facebook, he represented the company in discussion with record labels. Sources told me last year that he was behind Facebook’s decision to axe Audio, a Facebook app that let users upload and share full music tracks on the site. Given that Facebook has been looking at offering an interactive music service since August, one has to wonder if Project Playlist is one of the many online music companies to have received a “Request for Proposal” from Facebook to furnish such a service. The RFP would outline a potential music deal with Facebook wherein a third party would provide streaming music to the Facebook.

Meanwhile, Project Playlist was sued earlier this year by the Recording Industry Association of America on behalf of nine record labels, and has apparently worked things out since then. So it might be in a good position to be Facebook’s music partner. Of course, as with any other interactive online music startup, the labels likely have Project Playlist under a one or two year contract, which the labels typically use to force music sites to pay up at some point; this may be one reason for raising the funding now, as TechCrunch speculates.

Project Playlist claims it has 38 million music fans. TechCrunch, which has been following the Van Natta-Project Playlist saga for weeks, also hears that the company may be looking at purchasing rival imeem. Imeem, which offers a streaming music site and playlist apps for social networks, claims 25 million users on its home site with 85 million more interacting with its applications. Such a deal sounds like a small fish trying to swallow a bigger fish, but then again, imeem is reportedly for sale.

Palo Alto, Calif.-based Project Playlist has previously raised around $3 million from angels.

[Van Natta photo via The Guardian.]

The music labels haven’t made it easy for unauthorized web sites to stream music on the web. But David Porter, the founder of 8tracks, has figured out a way around the copyright law obstacles to deliver a useful and legal sharing service to music fans.

New York-based 8tracks capitalizes on the same right that radio stations have to play live music over the air: it’s OK to stream recorded music over the web, as long as the user doesn’t know what song is coming next. 8tracks uses this loophole, allowing users to create half-hour mixes of music and listen to streams of the music that they have created.

Since the average song is about four minutes, a half-hour mix is about eight tracks. Hence the name. The user can pick a minimum of eight songs and 8tracks will play it live, but in a random order. Users can share mixes with each other, effectively becoming disc jockeys. They can also listen to mixes shared by others. They can rate the mixes, attach album artwork to them and learn who has similar tastes.

Porter, who formerly worked as a general manager at live streaming radio company Live365, believes firmly that the personal recommendations of friends are the best way to discover music. He thinks that the algorithmically-generated song lists of competitors (such as Last.fm, Slacker, and Pandora) can’t beat the “hand-crafted” mixes of music aficionados. (Update: Slacker says its genre stations are hand-crafted and song selections on custom stations are “influenced” by top human programmers). It gets back to the notion that the DJ is kind of an artist for putting together lists of songs that belong together. I can appreciate Porter’s thinking since I felt like a DJ myself in the good old days when I painstakingly recorded music mixes on cassette tapes.

“We feel there is integrity in a personal music mix,” Porter said. “And for every 10 listeners, there is a DJ who creates lists.”

This isn’t just airy stuff. Research suggests that people still discover music either through friends or the random mixes on the radio.

The site’s user interface looks a little like the iPod’s interface for accessing music. And it also steals an idea from Twitter. You can see which mixes are available for listening in the center of the page. And on the right, you can see thumbnail pictures of all of your friends who share tracks with you. You can fill out your own profile and choose whom you want to follow. When that person creates a new mix, they share it with you. You can upload your own MP3 songs to the site’s library or choose songs that are already there. Creating lists is a simple matter of dragging “no frills” text from one side of the page to another.

The company hopes to make money through ads on the site. It will add links to Amazon.com, which in turn kicks back a portion of the purchase price for any music purchased. There will be audio ads and there will be a premium subscription option.

The company’s site goes live on Aug. 8. And at some point in the future, 8tracks will create widgets so that users can embed their mixes on MySpace pages, blogs or any other site. The company is also working on an application for the iPhone. That will launch later.

Porter started the company in the fall of 2006 and assembled a team by June 2007. He hired a mix of six developers and has six advisors. He bootstrapped it himself. There are other companies, such as Muxtape, that allow users to mix songs. But it isn’t clear whether those are in the clear with the music labels and copyright law. Under the Digital Millennium Copyright Act, you don’t need a direct license from the labels if you are playing music like a radio station, where the listener can’t pick the next song to play. Project Playlist allowed users to build playlists and embed them on social networking pages. The company grew to 600,000 daily users, but it wound up getting sued in April by nine music companies.

Internet radio stations with their own DJs are also competition. But who wants to listen to them when you can create your own song lists? Porter may have figured out a way to build a music site in the shadow of the giant labels. But we’ll see if users really feel like they’re free enough to enjoy music the way Porter hopes.

[Note: VentureBeat readers can get early access by going to this invite page. While 8tracks will launch to the public on Friday, the first 3,000 people to sign up using the invite code 'venturebeat' will get early access to the private beta this week.]

Here’s a summary of the latest action. See below for more:
1) In-Q-Tel invests in Forterra Systems, a private virtual world creator
2) Appfuel, another Facebook ad network, but with better ad targeting
3) AOL to spin out advertising arm?
4) Project Playlist, for sharing music playlists on other sites, raises $3 million
5) Four Interactive, a local business review site, gets $10 million from Valley VC’s

In-Q-Tel invests in Forterra Systems, a private virtual world creator – San Mateo-based Forterra’s software platform lets developers quickly create private, online virtual-world scenarios for organizations that can be used to simulate potential real world events, such as a government’s secret spy missions.

After running a scenario, the software lets its users get integrated reports that analyze participants’ actions to figure out what when right and what went wrong.

Besides government agencies, Forterra serves organizations in healthcare, education and other industries.

The amount of funding was undisclosed. The company said a “technology advancement agreement” was part of the deal, which sounds like customization for the needs of the US government. In-Q-Tel invests in technology companies that in some way further the interests of the US intelligence community.

Appfuel, another Facebook ad network, but with better ad targeting – RockYou, VideoEgg, Social Media and other Facebook ad networks have already been active for months. Today, San Francisco-based Appfuel is launching with the claim that it can more quickly and accurately serve targeted advertising within Facebook applications

In one example, if you state you’re a fan of the band the FooFighters on your Facebook profile page, then you might see an ad that shows you information about the band’s latest shows or where you can buy band t-shirts. GigaOm has more.

The company has raised an undisclosed amount of angel funding.

In other Facebook news, chief executive Mark Zuckerberg has been spotted in Seattle, on his way to talk to Microsoft — possibly about selling them some Facebook shares (our previous coverage).

AOL to spin out advertising arm? – New Techrunch editor Erick Schonfeld has the potential scoop.

Project Playlist, for sharing music playlists on other sites, raises $3 million – Another social music site with a widget, the Beverly Hills company lets you create, embed and listen to playlists on MySpace, Facebook and other social networks; PEHub reported the funding, although no investors were named.

Four Interactive, a local business review site, gets $10 million from Valley VC’s — The Bangalore-based company owns AskLaila.com, a Yelp-like site in India where you can read others’ reviews about local businesses and add your own. It includes proximity search, SMS notifications and other services. More here.

Investors include Lightspeed Venture Partners, Silicon Valley Bank and returning investor Matrix Partners.