Qtrax wants online advertisers to face the music

SINGAPORE (Reuters) - Qtrax, an upcoming online music swapping service, is targeting advertisers to plug some of the hundreds of millions of dollars lost by record firms as CD sales continue to fall because of illegal Internet music downloads.

The New York-based firm, owned by listed Brilliant Technologies Corp., is one of a handful of legal web music services with a business model based on generating revenue from online advertisements and sponsorships.

"We have a whole generation that refuses to pay for music downloads and a music industry really wants to find alternative revenue streams other than CD album sales," Allan Klepfisz, chief executive of Qtrax, told Reuters.

Generating sales from the Internet has become an elusive but increasingly urgent goal for record companies, which are bleeding millions of dollars from internet piracy.

Global digital music sales doubled to around $2 billion last year but remain insufficient to offset the fall in CD album sales, which are down nearly a quarter from 2000 to 2006.

Advertising-subsidized online music services such as SpiralFrog and Ruckus are already operational but Qtrax would be the first to use the existing file-swapping networks that link millions of personal computers for its free and legal downloads, Klepfisz said.

These peer-to-peer, or P2P, networks, including Gnutella and BitTorrent, already allow billions of digital music files to be traded illegally each month.

Although record companies have resorted to lawsuits to stop online piracy, illegal downloads continue to overshadow legal digital music sources such as Apple Inc.'s iTunes Music Store and Napster.

For instance, iTunes -- the world's biggest digital music outlet -- has sold just over 3 billion songs since its 2003 launch.

"Our competition are the illegal (download) sites. We are intent on producing a better form of 'free'," Kelpfisz said.

LION'S SHARE

Ahead of its launch later this year, Qtrax has won the support of the big four record companies, including Universal Music, EMI and Warner Music Group, by offering them the "lion's share" of advertising revenue on its application in return for their music.

Kelpfisz, 52, said ad-space around each song download would be sold to advertisers and more than 50 percent of the revenue generated would go to the rights owners of the track.

"There will be a button next to each song that will allow you to see free interviews, free pictures, free lyrics, free biographies. This enables people to spend a lot of time browsing to look for information and it gives us to advertise to them while they are doing that," said the Australian entrepreneur.

Kelpfisz, in Singapore to meet Asian investors to raise roughly $25 million in investment capital, said advertisers could use the free music to reach the 18-to-35-year olds who spend hours on the Internet, away from traditional entertainment options such as television viewing.

Qtrax's appeal to this segment of consumers would allow the start-up to capture a substantial slice of online advertising revenue, which hit $17 billion last year and is fast surpassing newspaper advertising sales.

The firm has begun hiring for its sales force that will seek advertising bookings in the U.S. from blue-chip firms such Intel, Toyota, Coca-Cola, PepsiCo.

"The Internet is undervalued in many ways," said Kelpfisz.