Crave

Should troubled file-sharing site Qtrax, eventually strike licensing deals with the major music companies, it still may face a significant hurdle.

Web Sheriff, a company representing music acts such as Prince, Van Morrison, and The Black Crowes, has notified Qtrax that it shouldn't think about offering their music, photographs, or other intellectual property until it has secured the artists' OK.

"Whilst Qtrax is an interesting model, many major label and indie artists will not be happy about their music being given away free (to consumers) in return for a currently opaque return from advertising revenues," said John Giacobbi, Web Sheriff's president, in an e-mail.

A British firm that protects digital content from piracy, Web Sheriff has informed Qtrax that in some instances artists must give permission--in addition to the music labels--before their songs can be legally distributed, Giacobbi said.

While Qtrax doesn't appear to have begun offering music downloads, there are photos posted to the site of artists such as the Foo Fighters, Daft Punk, and Wyclef Jean.

Daft Punk is on the EMI label while Jean and the Foo Fighters are represented by Sony BMG Music Entertainment. Representatives from Qtrax and the labels could not be reached for comment late Monday evening. It's unclear whether Qtrax has permission to use the photos.

"Any unauthorized use of copyright photos and/or copyright artwork is in violation of (the law)," Giacobbi said.

Qtrax wants to harness the popularity of illegal file sharing by offering a free, legal peer-to-peer service. The company said that it had deals in place that called for it to share ad revenue with music companies.

But Qtrax has been awash in controversy since Sunday, when questions were raised about whether the company possessed the rights to offer music from the four largest record companies.

For weeks, Qtrax managers had led reporters to believe that it had locked up licensing deals with the top record companies. Just hours before the site's scheduled Monday-morning launch, the labels began denying that the deals existed. Qtrax executives responded by holding up the unveiling of the music service.

Since then, sources close to the company said that Qtrax executives have waged an all-out campaign to tie up the loose ends. They have held numerous meetings with the labels during the Midem music conference in Cannes, France.

If nothing else, Qtrax's troubles show how hard it is to secure the many varied rights and releases needed to legally distribute music.

Giacobbi said he informed Qtrax's leaders that before offering music online, the start-up would first have to obtain master recording copyrights, musical composition copyrights, artwork copyrights, trademarks, performers' rights, moral rights, and publicity rights.

At first blush, Qtrax seemed like a good idea.

Executives there wooed reporters by promising to corral illegal file sharing. They built an interface on top of the Gnutella network where millions of songs are pirated. They pledged to offer users a legal way to download and share music.

Qtrax managers said they had convinced the big record labels that it could turn file sharing into a cash cow for them. They said all four of the most powerful labels were on board.

But on Monday, Qtrax was more than 12 hours late launching its music service. A day earlier, the big record companies made news by contradicting Qtrax. They said the company was not authorized to sell their music.

What was once an eagerly awaited debut is turning into a fiasco for the New York-based start-up, which has tried for more than a year to get off the ground.

The issues with Qtrax illustrate two things. First, the labels have clearly signaled that they are willing to give ad-supported music a try--just not with downloads. Secondly, Qtrax executives should know better than to announce deals when they don't have ink. Qtrax CEO Allan Klepfisz told CNET News.com on Sunday that the company had agreements, but acknowledged that they just weren't signed.

But everybody knows that without signed contracts, there is no deal.

Perhaps actress Kelly Preston said it best in the movie Jerry McGuire: "It's not 'Trust my handshake.' It's make the sale. Get it signed. There shouldn't be confusion about that."

As Qtrax struggles with licensing deals, the big record companies are partnering with a growing number of ad-supported sites that stream songs to listeners but don't allow the music to be downloaded to computers or digital music players.

Services, such as Imeem and Last.fm, which only stream songs, offer music from all four major labels, Universal Music Group, Warner Music Group, The EMI Group, and Sony BMG Music Entertainment.

Meanwhile, SpiralFrog, one of the best-known services and one that enables people to download to a PC and a handful of portable devices (but not the iPod), has been toiling in the sector for nearly two years and has managed to land a music deal with only one top label: Universal.

But how did Qtrax get mired in this mix up? Is the company a victim of a misunderstanding? Were executives overly confident when boasting to reporters that they had signed the top labels?

After interviews with managers at Qtrax and the record labels, it appears that a bit of both occurred.

Previously, Qtrax had succeeded in striking agreements with at least two of the record companies as the start-up was preparing to ramp up. But sources with knowledge of the deals said those deals have expired.

Qtrax is close to getting signatures from Universal and EMI, said the source but, "Qtrax spoke too soon."

How this public relations nightmare affects Qtrax's prospects for the future is unclear. But don't believe the old adage that all publicity is good publicity. As it stands, the debacle undermines Qtrax's competence, if not its integrity.

UPDATE: 7:12 A.M. (1-28-08): Qtrax continues to delay the launch of its much awaited legal file-sharing site as more record labels confirm that the startup doesn't have permission to sell their music.

For weeks, Qtrax, an ad-supported P2P site, had promised to offer free and legal music downloads from all four of the major record labels when it opened for business.

But despite earlier reports, Qtrax's Web site will apparently not feature legal downloads from any of the majors when it debuts. On the eve of the site's launch, Warner Music Group and Universal Music Group said that Qtrax was not authorized to offer their music.

Both companies said they continue to negotiate with Qtrax, but emphasized that they don't have a done deal. A spokesman from Sony BMG echoed the other two companies by confirming on Monday morning that the label has not signed on to Qtrax either.

The Los Angeles Times reported on Sunday that New York-based Qtrax is also without a final agreement with the EMI Group. The blog, Silicon Alley Insider, was first to report on Qtrax's troubles.

Meanwhile, Qtrax has missed it's launch time of midnight Monday morning ET. More than eight hours later, visitors were still not allowed to download music. Robin Kent, a Qtrax marketing executive said that it might be another 24 hours before the company can enable downloads.

Qtrax CEO Allan Klepfisz acknowledged in an interview with CNET News.com late Sunday evening that his company may not possess agreements "written in stone," but that it doesn't mean Qtrax is without the labels' consent to feature their music.

"This is a tempest in a tea cup," Klepfisz said from the Midem music conference in Cannes, France. "It's true, some of the deals may not be locked in ink, but it's also true that we had understandings. In some cases, we had endorsements."

Klepfisz said it was likely the Qtrax Web site would debut featuring music from all four labels despite the public comments by UMG and Warner. Is he worried about a lawsuit?

"The answer is nobody has threatened us with a thing," Klepfisz said. "We plan to release music the way we said we were."

Qtrax's business model is based on offering people an attractive and legal file-sharing site.

The company's music offering sits on top of the Gnutella file-sharing network. Once a user downloads Qtrax's software client, they can look for songs with the help of the company's finger-printing technology.

Qtrax guarantees to protect customers from spyware or viruses that plague illegal sites. The way Qtrax makes money is by placing ads on its Web pages. The company then splits the ad revenue with the labels.

Recently, the labels have embraced ad-supported models. What they don't seem keen on are ad-supported sites that offer downloads.

For example, services such as Imeem and Last.fm, which stream music to listeners but don't allow them to download it to a computer or portable device, offer songs from all four top labels.

SpiralFrog, one of the best known services and one that enables people to download to a PC and some portable devices, has been toiling in the sector for nearly two years and has only managed to land one of the biggie labels: Universal Music Group.