'Free' Music-Sharing Service Admits It Has No Deals

Published January 29, 2008

| Associated Press

A distributor of Internet file-swapping software abruptly postponed the launch of its free online music service until it can finalize music licensing deals — a detail the company omitted when it threw a star-studded coming-out party over the weekend.

Qtrax's ambitious, ad-supported music service promised unlimited, advertising-supported music downloads with the blessing of the major recording companies.

That claim began to unravel just hours before Qtrax's scheduled debut Monday when Warner Music Group Corp. issued a statement that it had not authorized the firm to distribute its artists' music.

Other major record labels soon followed.

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In a statement, Qtrax President and Chief Executive Allan Klepfisz said the launch of the service would be put off "for a short time."

He also maintained that the service had the support of "rightsholders."

"We believe the exact nature of that support will be publicly clarified within a very short time," Klepfisz added.

The recording industry has begun embracing such alternative business models amid a multiyear decline in album sales in CDs and other physical formats.

Online sales have jumped dramatically in recent years with the rise of Apple Inc.'s iTunes Store and the ubiquitous iPod portable music players, but they haven't offset music industry losses.

Qtrax set out to legitimize the experience of downloading music for free from other music fans' computers via online file-swapping networks like Gnutella by using advertising revenue to compensate record companies.

Users are required to download software from the Qtrax site to search and download music.

Qtrax did not provides users with the codes needed to download music through its software, although users were still able to use other features built into the application, including browsing the Internet and playing media files, the company said Monday.

Qtrax said it would distribute the codes required to use all of the music service's features once it obtained all the music licenses.

Some 61,000 unique users per hour were using the Qtrax software by midday, the company said.

Repeated attempts to download the Qtrax software from its Web site Monday were unsuccessful.

Qtrax staged its splashy debut a the annual MIDEM music business conference at the seaside resort of Cannes on Sunday.

The media blitz featured champagne, snazzy slogans and invitation-only concerts from celebrities including the likes of James Blunt.

Within hours, however, Qtrax found itself in damage-control mode.

The Qtrax Web site had not even gone live when Warner Music issued its statement.

Two other major recording companies, Vivendi SA's Universal Music Group and Britain's EMI Group PLC, later confirmed they did not have licensing deals in place with Qtrax, noting discussions were still ongoing.

On Monday, Sony BMG Music Entertainment noted it had not entered into a license agreement granting Qtrax the rights to launch the latest version of the service.

The recording company had reached a deal with Qtrax last April to license its content when Qtrax was eyeing the launch of a service that let users listen to complete tracks a limited number of times before offering them the option to purchase them — a business model far different from the free, unlimited download service that the company sought to debut this week.

Music services such as Qtrax must secure licensing agreements from the record companies, which own the rights to master recordings, and music publishers, which control the rights to song compositions.

Each of the major recording companies also operates music publishing units.

At MIDEM Sunday, Klepfisz acknowledged discussions with the labels were not easy.

"A colonoscopy is relatively painless in comparison," he told participants.

Later, Klepfisz told The Associated Press that he had reached agreements on the terms of the deals, though some deals had yet to be formally signed.

Privately, some recording industry executives said Monday the botched launch likely wouldn't factor in final decisions on whether to sign off on the service.

New York-based Qtrax, a subsidiary of Brilliant Technologies Corp., is the latest online music venture counting on the lure of free music to draw in music fans and on advertising to generate revenue.

The service was among several peer-to-peer file-sharing applications that emerged following the shutdown of Napster, the pioneer service that enabled millions to illegally copy songs stored in other music fans' computers.

Qtrax shut down after a few months following its 2002 launch to avoid potential legal trouble.

Its new software is designed to let users tap into file-sharing networks to search for music, but downloads are scanned for viruses by Qtrax and embedded with copy-protection technology known as digital-rights management, or DRM, to prevent users from burning copies to a CD and calculate how to divvy up advertising sales with labels, the company said.

Downloads can be stored indefinitely on PCs and — unlike several competing services — be transferred onto portable music players, but they won't work with iPods for now.

An "iPod solution" won't be available until April 15, Qtrax said.

For an industry that has traditionally relied on paid-for services, advertising was greeted cautiously in Cannes as a replacement for consumers' cash.

"I would like anybody to succeed in this area but there are big challenges," said John Kennedy, CEO of the International Federation of the Phonographic Industry, or IFPI. "I don't see how Qtrax has resolved the challenge of providing adequate revenues."

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