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Qtrax, a company that stumbled badly out of the gate, appears to be on the road to recovery.

The legal P2P music service has signed a licensing deal with Warner/Chappell music publishing, according to a spokeswoman with Warner Music Group. The move comes a week after Qtrax inked a deal with Universal Music Group, the largest recording company.

If you remember, Qtrax was the company that claimed in January when it launched the site to have signed all four of the top music labels, only to see the companies deny such agreements existed. Since then Qtrax has continued to plug along at the negotiating table.

But the contract with Warner/Chappell doesn't mean Qtrax can start offering music from Warner Music. In the convoluted way music licenses are handled, an online music store must secure publishing and recording rights. In this case, the recording rights are of course owned by Warner Music and the company's spokeswoman had no idea when a deal might be reached with the fledgling service.

Qtrax, the legal P2P music start-up, really has signed a licensing agreement with a major label this time.

On Tuesday, the company announced it has inked a deal with Universal Music Group, the largest of the four major record companies. The partnership comes four months after the labels denied the company's claim that they had agreed to supply music for the site.

"Qtrax will now have access to the most extensive digital music catalog of chart-topping artists in the world," Universal Music Group said in a statement.

Qtrax, an ad-supported P2P service, didn't ballyhoo the news this time. The service, designed to offer a legal alternative to illegal file sharing, instead quietly issued a brief press release. This is in marked contrast to the way the company launched the site in January--with a star-studded party and lots of breathless quotes from executives.

The press punished the company when it was revealed that Qtrax possessed no signed contracts with any of the four top music companies.

A Qtrax spokeswoman declined to comment, so there's no word on when it might sign the other three labels.

Hey, Mr. Music Executive: scrap your preoccupation with CD sales and start looking for ways to help people share, yes share music; focus more on developing and profiting from artists; and forget about subscription services and ad-supported music.

These are the conclusions of James McQuivey, a Forrester analyst, according to a report titled "The End Of The Music Industry As We Know It," issued on Tuesday.

That's a fitting title because the report reads like an obituary. Tower Records, a music mecca for decades, has already closed but McQuivey argues the real deathblow to the industry will come when Wal-Mart Stores, Best Buy, and other large retailers begin scaling back shelf space for CDs.

"This move will permanently signal the end of the music business as it was once known," McQuivey wrote. "From that point on, more music will be sold digitally than on CD, reducing CD sales to just $3.8 billion in 2012."

McQuivey, a former professor at Boston University, tells record executives to cheer up because there are ways to rise from the ashes. He says first, the industry should quit fooling around with music subscriptions and ad-supported models. People want to own their music and downloads have won. Only 7 percent of adults on the Web say they have ever tried a subscription service, according to the report.

The analyst also sent a message to ad-supported music services, such as SpiralFrog and Qtrax. The ad-supported model should stay "on the radio where it belongs," he said in his report. Social networks are better places for selling ads against music, and they also allow users to share songs virally.

McQuivey's finding here was particularly timely. Over the weekend, PaidContent reported that MySpace is in talks with the four top labels about launching a jointly operated, ad-supported music service.

Sharing is vital, according to McQuivey, because it makes new music discovery easier, which the Web was supposed to help with but so far has tanked. In this effort, he sends a special shout out to Slacker, a personal online-radio service.

"The gold medal for 2007 (in music discovery) should have gone to Slacker," McQuivey wrote. "(The) portable device provides instant access to radio-formatted music that can easily convert to a digital download with the click of a button. This model combines the simplicity of the radio experience with the power of music ownership."

When it comes to artists, the labels should focus more broadly on a musician's career, including merchandise and concerts, as well as recordings. He said it's the artists, not the CDs that are the music industry's true product.

In a final note, McQuivey suggests that music artists, who have historically looked down their noses at advertising, had better change. He says the industry should rip a page out of NASCAR's playbook.

"Artists who used to pretend that their platinum album success was really about their "art" will no longer have that luxurious pretense because labels won't sign them unless they agree to a barrage of sponsorship opportunities," McQuivey wrote. "There will eventually come a day when Chips Ahoy will contend with the Keebler Elves over who can be the official cookie of the Taylor Swift world tour."

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.

Correction: I originally posted that Qtrax uses MusicIP. According to a PR representative from that company, Qtrax has no deal with MusicIP--the companies have talked, but no deal has been signed. Apologies for not double-checking all my facts.

I was finally able to get the Qtrax 0.2 beta client, and it's clearly based on Songbird.

The ads work, the downloads don't.

(Credit: Screenshot)

Songbird defies easy summarization: it's an open-source project, based on the Mozilla platform, that intends to ease the creation of digital media apps. The basic app is a straightforward music library organizer and player (some of Songbird's founders worked on Winamp), and Songbird offers resources for developers to create customized versions of this basic player (think APIs, documentation, sample code, a loose license, and so on). It's an intriguing project, but I hadn't seen any compelling reason to download it.

The experience is akin to using a skinned version of Firefox: the "browser" appears in the middle of the screen, and defaults to a Qtrax page that offers featured artists, such as Foo Fighters and Amy Winehouse. Surrounding this screen are various other UI elements, including the all-important advertisements. From the home page, you can register via a link on the upper right-hand side of the page (see screenshot), and once you've confirmed your registration via e-mail, you're ready to use Qtrax's search engine to find songs. These songs aren't stored in any Qtrax database.

Qtrax found my test case, UFO's "Love to Love"--about 10 different versions, in fact--but the download button gave me an disappointing but not surprising message that downloads are coming soon. Apparently until the licensing deals are worked out, there's no there there.

To register with Qtrax, download the client, follow a download link from the front page, and follow the "Register" link from the upper-right hand corner. But once you've done that, you'll still be waiting for downloads to be enabled.

(Credit: Screenshot)

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.

Qtrax is the first free and legal music download service that sounds promising enough to check out. (They claim it's a "P2P" service, but I'm not sure you can upload anything, so that disqualifies it in my book.)

They're advertising 25 million tracks, and claiming that all four majors are onboard, although Warner apparently begs to differ. Files are encrusted with DRM, but only to prevent users from burning them to a CD--transfers to any Windows Media-compatible portable music player are OK, and iPod support is promised later this year. (Qtrax hasn't said whether this is a reverse-engineering kludge like RealNetworks pulled off a few years back or if Apple's actually taking the unprecedented step of licensing FairPlay.) It's advertising-supported, but ads are easily ignorable, and I was planning on transferring songs to my Zune anyway--there's no way to display ads there.

Or not.

(Credit: Qtrax)

So I was looking forward to downloading the Firefox-based client, downloading some new-ish music I'm still on the fence about (LCD Soundsystem), experimenting with older music I've been meaning to check out but never have (where to start with the Jesus Lizard?), and testing the depth of their catalog with some '70s metal ballads I'd never buy but might someday want to hear just for old times' sake (UFO's "Love to Love," Blue Oyster Cult's "I Love the Night").

The beta software is supposed to be "available at midnight, EST!" (Their exclamation point, not mine.) The servers were so overloaded for the first 20 minutes, the site kept timing out. Now, at 35 after, the download page is showing up, but there's nothing there to download.

If first impressions are anything to go by, Qtrax fails. But I'll give it another chance tomorrow and let you know if it's worth the download.

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.