O.K., Downloaders, Let’s Try This Song Again (Published 2011) (2024)

THE digital music landscape is littered with the corpses of start-ups that tried and failed to offer free music downloads. One of them was Qtrax, which imploded amid controversy and lawsuits a few years ago.

Now Qtrax is back from the dead and — according to its founders — back on track. But what makes them think they can succeed this time?

“What we’re doing is, without question, overly ambitious,” says Allan Klepfisz, an Australian entrepreneur who, along with Lance Ford, a former British rock musician, is restarting Qtrax to much skepticism. Critics point to false starts and missteps in the company’s history and say its plan to make a profit solely through advertising is untenable.

Qtrax’s ambitions may seem quixotic, but it does offer something distinct in the current market: free and legal music downloads.

Mr. Klepfisz says he isn’t trying to compete directly with Internet radio stations like Pandora, Slacker, turntable.fm, iHeartRadio and Radical FM, or with Apple’s iTunes store for paying customers. Instead, he is aiming at the millions of people who now go to pirating sites and other outlets to download songs illegally.

About 95 percent of music downloads in 2010 were unlicensed and illegal, with no money flowing back to artists, songwriters or record producers, according to Alex Jacob, a spokesman for the International Federation of the Phonographic Industry. So riches could await a company that persuades some of these Internet scofflaws to change their ways.

Illegal downloading does have drawbacks that go beyond the threat of prosecution, which is relatively rare among average listeners. For one, the sound quality can be poor. For another, the songs on illegal sites can harbor viruses.

Qtrax says it offers free, high-quality and safe downloads, now on laptops and coming soon to mobile phones. Unlike streaming services, which need a strong Internet connection and often require subscription fees, Qtrax listeners can tune into their music where there is no Internet — on subways, say, or in that log cabin deep in the wilderness.

But there’s a catch. The Qtrax music can be played only on a Qtrax software player, which is free but must be downloaded — ads included — from the company’s Web site.

Mr. Klepfisz and Mr. Ford first introduced their baby in January 2008 in Cannes, France, with a multimillion-dollar splash at Midem, one of the music industry’s most prestigious trade shows. They rented suites at the Intercontinental Carlton hotel, in anticipation of a flood of press requests. They also sponsored lunches at the conference hall and hired LL Cool J, Don Henley and James Blunt to rock out at a private party, and the buzz was on.

They boasted of big-name advertisers, including Ford Motor and Burger King, and said they had the blessing of the major record labels, along with some 25 million tracks available for download.

But within days, one of the major labels announced that no licensing deal had been signed. Trade show attendees soon learned that formal licensing agreements had not been signed with any of the four major labels, that the depth of advertising support was exaggerated, and that the number of available tracks was highly questionable.

The backlash broadsided Mr. Klepfisz. “We took a massive reputation hit,” he says.

Mr. Klepfisz says he and Mr. Ford were simply naïve and did not intentionally mislead anyone. On the wall of their 28th-floor office in Midtown Manhattan is a sign that reads “naïve” in big block letters, given to Mr. Klepfisz by his former wife, Jennifer, as a commentary on Qtrax, he says. (She had to suffer through its first start, he notes.)

Mr. Klepfisz says he now has official, short-term licensing agreements with three of the four major labels — Sony, EMI and Universal. For confidentiality reasons, he declined to give details about the cost or the length of the licensing pacts. As for the claim about offering 25 million tracks, he acknowledges that he jumped the gun, saying that it was the number he estimated the company could eventually offer as the licensing agreements were rolled out.

Sony and EMI confirmed that short-term agreements with Qtrax were now in place, but declined to comment further. Universal did not return calls, and negotiations are still under way to get a licensing deal with Warner, the fourth major label. Mr. Klepfisz says all of the licensing deals will need to be renewed this year, but adds that he’s confident they will be.

He says 2.5 million tracks are now available for download, with plans to offer at least 5 million and possibly 10 million by year-end. (Most digital music subscription sites worth their salt these days have 10 million or more songs available in their libraries, says Aram Sinnreich, a media professor at Rutgers and a co-founder of Radar Research.)

STILL, the false start and missteps raise credibility questions for prospective investors, says Michael H. Baniak, a partner at McDonnell Boehnen Hulbert & Berghoff, based in Chicago.

And the issues don’t end with the over-the-top promises it made in 2008. The company has also been sued by at least four entities: Oracle, the software giant; Osher Capital, a private investment company; Millennium Information Technologies, a networking solutions company; and the Las Vegas Wall Street Group, an investment company based in Brooklyn. Some of the suits are related to technology licenses while others are associated with unpaid loans.

Most of the suits have not yet been settled, and Mr. Klepfisz and Mr. Ford tried multiple times during an interview to steer the conversation away from the topic. When pressed, Mr. Klepfisz conceded that the “international humiliation” at Midem and the recent economic crisis took a financial toll. “We didn’t have the money” to settle the suits, though efforts are now under way to resolve them, he says.

To shore up their financial position, he and Mr. Ford have been focusing on fund-raising. In 2008, when venture capital, private equity and hedge fund markets dried up during the economic crisis, they had to start looking elsewhere for cash — mostly in Asia. Mr. Klepfisz says the company has raised “tens of millions of dollars,” with about 20 percent of that coming since the restart.

Still, Qtrax is relying primarily on the ads linked to the music player to finance licensing fees and to make the company profitable — a business model that many industry experts are skeptical can work. They point to previous hopefuls like Napster, which was sued by the record labels over copyright laws and is now a shadow of its former self (and now charges subscription fees for music) and to SpiralFrog and Ruckus, which had some backing from the major labels but collapsed after failing to raise enough cash to cover royalties to the record companies.

Even Pandora is struggling to turn a profit, and it gets revenue from both ads and subscriptions, said Mark Harding, a digital media analyst at the Maxim Group. Pandora offers free Internet radio, but charges a subscription fee for those whose listening exceeds 40 hours a month. And Pandora’s licensing fees for streaming are far lower than those of companies that offer downloads.

Qtrax uses banner ads on the player that downloads and plays the music. Ads are also found on pages on the site that provide information about the bands. Users see three ads a page when they download or play a song — but the ads do not delay or interfere with the ability to download or listen, Mr. Klepfisz says.

“We are diametrically opposed to placing ads that precede listening to the music — that forces people to endure the ads before they can hear the song,” he says. “We think that if you do those sorts of things, people will go back to the illegal sites.”

For now, the company is running network ads from Google, Yahoo and others, where banner ads are posted on Qtrax from a variety of companies, based on demographics. This form of advertising doesn’t generate as much cash as ad deals hammered out directly with major companies. But Mr. Ford says he’s waiting to approach the big brands until Qtrax has expanded its global footprint into 50 countries — it’s now in 11 — and has significantly more tracks, likely in 2012.

Mr. Ford says plans are also in the works to creatively expand the ads, either through videos as the music plays or through joint marketing agreements with big-company brands, which could involve sponsored tours or contests to meet band members.

Music has always been a passion of Mr. Ford, now 52, who was born in London and once fronted a rock band there called Bad Press. In 1980, he moved to New York, where he sang and played guitar on the street for cash while seeking a record deal. He gave up street performing in 1983 when he started selling ads for magazines — including Maxim and publications of Condé Nast — though he still writes songs today.

When Mr. Ford started to see ad dollars trickling onto the Web, he joined MusicLoads, which was later renamed SpiralFrog and had a similar structure to Qtrax. After a falling-out with the owner in 2007, he left SpiralFrog (which later folded) to form Rebel Digital, an Internet advertising and marketing firm. It was through this company that he met Mr. Klepfisz at Qtrax.

“He liked us so much he bought us,” Mr. Ford says, and the two formed a partnership.

Mr. Klepfisz, 55, was born in Melbourne, Australia. Before starting Qtrax, he worked on several entrepreneurial ventures, including a loyalty shopping program, a restaurant and a company that bought Web site domain names. He came up with the idea for Qtrax while chatting with the Australian rocker Mike Rudd, who had been struggling to make ends meet after illegal digital downloading took off.

Qtrax executives feel strongly that artists deserve to be paid for their work. “Every time something gets played, they deserve to be paid something,” Mr. Ford says. “They’re getting paid nothing now for most of their music. Zero.”

He adds that Qtrax goes far beyond SpiralFrog in terms of licensing deals and content. And Qtrax is enhancing its site with band information, live performances and ticket sales. The site will get a cut from those sales, and from merchandise sold through site links, he says.

It is also aggressively seeking partnerships like those it has with Baidu, the Chinese search engine, and with Lenco Media, which supplies Internet radio stations with technology and advertising. Under these agreements, people searching for a particular song through the Baidu search tool or listening to a song on an Internet radio station through Lenco’s platform will see a button that allows them to download the music from the Qtrax site.

Still, some industry experts wonder whether Qtrax’s downloading model is viable anymore.

“My gut instinct is they’re kind of betting against the future,” says Kevin Cogill, a music blogger and Web site developer in California.

Much of the hype over the last six months has been around so-called cloud services. Google, Amazon and Apple have all announced plans to allow people to upload their music to the cloud, which will allow them to stream their music on cellphones, laptops, iPods, iPads, PlayStations and other gadgets.

“No one wants to have to copy their music library to a million different devices,” Mr. Cogill says. “They want to be able to access it from the cloud.” Because Qtrax’s downloaded tracks can only be played on a Qtrax player, they cannot be uploaded to the cloud — and that could be a drawback.

Mr. Cogill experienced the wrath of the record labels after he leaked nine tracks from an unreleased Guns N’ Roses album on his Antiquiet.com site. Five F.B.I. agents stormed into his Culver City, Calif., apartment early one morning in August 2008, dragged him out of bed and led him away in handcuffs as his neighbors looked on.

Charged with felony copyright infringement on work prepared for commercial release, Mr. Cogill faced up to three years in prison and $250,000 in fines, but wound up pleading guilty to a lesser charge of misdemeanor copyright infringement and received probation.

Mr. Klepfisz does not rule out offering a subscription service, streaming or even a cloud service at some point, but says he feels that offering free downloads is crucial to luring music fans away from illegal downloading sites.

“For the moment,” he says, “we want to start with tackling the pirate industry.”

QTRAX is hardly alone in its bid to ride the music Internet wave that has Wall Street swooning.

Spotify has generated considerable hype in recent months, having built a successful subscription-based streaming and downloading site in Europe; it recently expanded to the United States. Another up-and-comer is Rdio, which offers streaming services and synching to mobile devices for a monthly charge. The Internet radio sites turntable.fm and iHeartRadio are also generating buzz on the Street.

Qtrax wouldn’t mind taking a page from Pandora, the Internet darling that went public recently after years of struggle. Mr. Ford acknowledges that the idea of building enough scale to take Qtrax public is a sweet one — and in his view entirely plausible.

“Pandora was near bankruptcy two years ago and look what they’ve done,” he says.