For years, music labels have been trying to prevent fans from downloading their songs on peer-to-peer file-sharing networks. Now, some of them would like to encourage people to listen to music that way -- provided they view some advertising first.
Several startup companies are pursuing the idea of advertising-supported music, including SpiralFrog and Ruckus, which caters to college students. Qtrax, one such company that plans to open for business in September, already has deals to sell music from Warner Music Group and EMI Group, and it planned to announce a similar deal with Sony BMG Music Entertainment yesterday.
Allan Klepfisz, the company's president and chief executive, said Qtrax was in negotiations with the fourth major label, Universal Music Group, and Merlin, an agency that represents many independent labels.
Advertising revenue would be used to compensate the music labels that make their songs available, just as television commercials fund the production of shows. And though labels have been reluctant to legitimize the idea of free music, they are also extremely eager to find new business models. Sales of compact discs are down sharply so far this year after previous declines, and revenue from online music stores, such as Apple's iTunes, is not growing fast enough to compensate.
Terry McBride, the chief executive of the Nettwerk Music Group, a label and artist management company, believes a legitimate peer-to-peer service could appeal to illegal downloaders, simply because it works much like the programs they use now.
"My philosophy is, don't try to get people to consume the way you want them to," he said. "Figure out how they're consuming music, market to that and monetize their behavior."
Nettwerk works with a company called Intent MediaWorks, which seeds peer-to-peer networks with copies of the label's songs that contain advertising.
Labels hope that the legitimacy and convenience of services like Qtrax will help them compete with unauthorized offerings.
"We hope this service will draw from the illegal P-to-P [peer-to-peer] sites," said George White, senior vice president of Strategy and Product Development for Warner Music Group.
From the user's perspective, Qtrax works much like any file-sharing program, and it searches the Gnutella network. But Qtrax only displays files that it has permission to play, then brings up relevant advertising, much as Google does for search terms.
Although advertisers would not be able to have their messages appear with the name of only one particular artist, Klepfisz said they would be able to buy "buckets" of a particular genre. Listeners would be able to hear songs a certain number of times -- probably five in the case of most of the major label acts.
If listeners like what they hear, they would be able to purchase those songs, much as they can on iTunes. Initially, those sales could generate more revenue than advertising, White said.
Over the long term, however, Qtrax plans to make most of its money selling advertising.
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