Grooveshark

Qtrax claimed to be the first legal music download site to offer free streaming and free downloads. Qtrax plans to pay labels 50% of advertising revenues to cover the cost of the free music downloads and free streaming.

Qtrax, which is built on the Songbird platform, crawled through the Gnutella p2p network and removed viruses, installed DRM and gave users an easy way to download and listen to free music. They did all this with without the approval of the major labels.

Unfortunately, after their announcement yesterday that they had all four record labels signed and 25 million songs, it looks like this all might be hot air. It turns out that they had spoken to all four major labels, but they hadn’t actually signed any of them. Universal, EMI, Warner, and Sony BMG all announced they did not yet have a deal with Qtrax.

Typically, startups have gone the route of begging for forgiveness rather than asking permission, but it appears Qtrax has developed its own strategy:

Claim to have permission, and then beg for forgiveness.

Doesn’t have quite the same ring to it.

The reason the labels are having such a tough time with Qtrax is simply because of the possibility of a network such as Qtrax. They give users access to 25 million songs they can easily download, for free, wrapped in DRM. In return, the labels get 50% of the advertising revenue. Given the fact that Qtrax files do not work on an iPod, they probably won’t grow to a critical scale.

At this point, the labels have given away their entire catalog for essentially nothing, only to be protected by Qtrax’s DRM system. And we know it’s just a matter of time until some hacker develops a DRM-crack that allows users to access 25 million songs that play on iPods, for free, without spamware or viruses, with the same ease of using iTunes, and the labels still get that same 50% of revenue.

So do you see why a system like Qtrax is a bit dangerous and scary for the record labels?

Grooveshark has built their model around enabling labels to maintain their current business model of selling tracks on a per-song or per-album basis. While we realize that the price of songs will probably slide down a little before there is a solid-equilibrium, the cost per song model can still be attainable, especially given $.49 or $.29 download prices.

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• Posted in Community