Major Labels Allow P2P Music Sharing on Qtrax

After years of fighting peer-to-peer file-sharing companies, the major record labels have decided that if they can't beat them, they might as well join them -- in one case, anyway. At the Midem conference in Cannes, France, Qtrax announced deals with all the major music labels and publishers to offer the first free and legal ad-supported P2P service to include major label music.

"You can't change the attitudes and habits of what is now probably amounting to two generations who believe that music ought to be free on the internet," said Qtrax CEO Allan Klepfisz. "Those people are not going to be discouraged by Supreme Court decisions, they're not going to be discouraged by technological interference. Ultimately, what will discourage them is a demonstratively better service."

Klepfisz pegs the service's catalog at more than 25 million songs, which would dwarf those of iTunes and other online music stores. The songs will be wrapped in Microsoft's Windows Media subscription DRM. This means that unlike the free, ad-supported services offered by imeem and Last.fm, Qtrax's songs can be downloaded onto compatible players. The application is based on the Songbird engine, so sharing and downloading occurs within a Firefox browser -- no separate application required.

As of now, the tracks are not compatible with the Apple iPod, but Klepfisz said that the service would be compatible with iPods before too long -- an indication that Apple could apply the subscription technology developed for iTunes movie rentals to the music market.

To get the industry on board with P2P, Qtrax signed over "the lion's share of revenue" to labels and publishers, paying out on per-download and per-play bases. The site also categorized the music of the world into three lists. One list includes artists who do not permit their music to be made available online in any capacity. "The blacklist is fast disappearing -- my prediction is that in a year, the blacklist won't be in existence," said Klepfisz. The white list consists of the standard digital catalogs from major and indie labels -- the same 5-million-plus songs that are on iTunes.

The gray list constitutes the difference between what's available on iTunes and what's available on BitTorrent. "Then you have the gray list, which is that vast body of stuff that's out there on P2P, where there are rights holders, but the rights holders themselves may not even know that a song is being downloaded frequently.... To the best of our ability, we identify the rights holder and pay them a percentage of the advertising revenue. In the minority of cases where we can't identify a rights holder, we will actually put up the song for claiming, and will reserve the portion of the ad pie until that song is appropriately claimed." As with other free, ad-supported services, revenue comes from advertisers who want to target ads to specific types of listeners.

Advertisers have long understood the power of music to move product, and some have developed specific music strategies for working with new services such as Qtrax, according to Klepfisz. But without the labels' sign-off on this service, a sanctioned P2P service of this size never would have been possible.

With these deals, the labels have demonstrated openness toward revenue streams that deviate from the record-store model.

"This is a tacit acknowledgment that 'bulletproof' wasn't working," said IDC consumer audio analyst Susan Kevorkian. "And it hasn't been working. But it was an experiment the music industry needed to undertake in order to figure out how to address digital distribution. It was a very long learning process, but fortunately there's still the possibility of finding the pot of gold at the end of the rainbow."