LONDON – EMI Group said on Monday it would make its music catalog available to the first advertising supported peer-to-peer service as the entertainment industry embraces the same technology that once nearly crippled it.
The new service, called Qtrax, developed by New York-based LTDnetwork and slated for launch later this year, will give consumers the ability to download music for free after watching ads, or the option of paying for a premium subscription version.
Financial terms of the deal with London-based EMI, home to Coldplay and Robbie Williams, were not disclosed, although EMI, which is the first of the music majors to sign up, will share in both the advertising and song sales revenue.
Peer-to-peer services, which allow users to download music, films and TV programs from other users who have the desired files instead of a central server, stunned record companies in 1998 as teenagers started building massive music collections by swapping songs for free online with services such as Napster (NAPS) and Grokster, rather than paying for CDs.
Music companies and film studios have been slowly warming to P2P services, however, as they overcome their bitterness and fears, in a bid to harness file-sharing networks so users pay for copyrighted songs.
Warner Bros. earlier this year, for example, began selling movies and TV shows in Germany, Austria and Switzerland using a peer-to-peer network.
Qtrax is betting that its model, which seeks to capitalize on the Internet advertising boom, will provide a fresh impetus to lure the music industry.
"There's a lot of pent-up demand for advertisers to get onto peer-to-peer services, but up until now it's been illegal, and highly dangerous territory for them to wade into," Allan Klepfisz, CEO of LTDnetwork's parent company Brilliant Technologies Corp., said in a telephone interview.
He said there have been conversations with advertisers, but no one has signed up just yet, adding that the priority has been to nail down the four major music companies.
"We have advertisers tentatively on board, but until you launch, it's a bit of theoretical thing," Klepfisz said.
Qtrax's free version will allow consumers to download songs in the .mpq format and play them five times while offering them a click-to-buy option. Other music companies may allow more or fewer uses, Klepfisz said.
User song searches also will return click-through options to buy related CDs, DVDs and books on Shopping.com.
"We think that any ad-supported model should be offered in a way that maintains, or even enhances the value of music, and we believe Qtrax does that by offering a good consumer experience and significant up-selling opportunities," said David Munns, chairman and CEO of EMI Music North America.
He added that EMI would be able to use Qtrax to gain insights into consumer behavior by gauging how many people sample music for free versus how many buy.
The service is expected to start a testing phase later this year and will initially pilot it in the United States after Vivendi's (V) Universal Music, Sony BMG and Warner Music (WMG) join EMI to be part of Qtrax.
"We will not launch until all the majors have signed on," Klepfisz said.
Music companies are rapidly seeking to replace the revenue lost by diminished CD sales with digital downloads and mobile services. Digital music accounted for about 6 percent, or about $790 million, of total global music sales last year.