Major record labels strike deal with online service

Battling the twin demons of plummeting sales and rampant piracy, the four major record companies moved closer last week to allowing music lovers to listen to any tune, free of charge.

The companies agreed to license their digital catalogues to a new service that exploits online music bandits for commercial purposes. Qtrax, as the web service is called, legitimises the peer-to-peer networks that accelerated music piracy in the 1990s by allowing computer users to share their music files online.

The novel service scours pirate networks for songs, then delivers them as downloads to the computers of fans willing to have advertisements play while they listen.

Executives behind Qtrax said the service would provide tens of millions of songs - far more than are available on Apple's iTunes, the top legal download site. As with other advert-supported services, Qtrax has drawbacks, and it is currently available only in a test version that might not work as well as established sites.

But its launch at a music industry event in France over the weekend shows how the labels are increasingly willing to try new ways to recapture the money lost to internet piracy. After years of negotiations, the site won permission to sell music from music publishers and the four labels: Universal Music Group, owned by Vivendi; Sony BMG Music Entertainment; Warner Music Group; and EMI Group.

Many executives worry that advert-supported services will "accelerate a race to the bottom," as one label veteran who negotiated with Qtrax said. "The counter argument is that music is already free."

Identity crisis

The labels are continuing to retrench and are in something of a prolonged identity crisis in the face of plunging sales. EMI this month said it would fire as many as 2,000 of its roughly 5,500 employees and cut back on large advances to established acts.

An increasing number of the biggest artists, including Paul McCartney, Madonna and Radiohead, have deserted the labels and signed up with concert promoters or retailers or simply struck out on their own.

The labels have been trying to broaden their revenue opportunities by signing deals that give them a percentage of bands' sales of tickets and branded merchandise, but many managers see no reason to surrender these income sources to the corporations.

The record companies are continuing to pay a heavy price for their long opposition to online services. Apple has been the primary beneficiary through the sales of its iPod and iPhone.