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Music Industry Explores New Approach to Online Downloads

CANNES, France -- Away from the headlines of job losses, grumbling artists and falling global sales, the music industry is discussing new business models to boost digital sales and offset the fall in CD sales.

At the annual industry meeting on the French coast this week, much of the talk was dominated by a new, free music download service called Qtrax, which plastered all available space with huge posters declaring the CD dead and estimating that more than 1.2 billion illegal downloads would be made during the event itself.

Sources and reports said Qtrax is in discussions with several major labels. The firm backed off earlier claims that it has deals with all four major music companies after Warner Music Group denied it had agreed to terms with the startup.

The site had said it would be supported by advertising revenue and planned to launch on Monday with about 25 million to 30 million copyrighted tracks.

"We are in discussion with Warner Music Group to ensure that the service is licensed, and we hope to reach an agreement shortly," Qtrax said late on Sunday.

However, Warner confirmed that it has not signed a deal with the site.

"Warner Music Group has not authorized the use of our content on Qtrax's recently announced service," Warner, the No. 3 music company, said in a statement late on Sunday.

A source close to Universal Music Group, the world's largest music company, told Reuters it also did not have a deal with Qtrax, but discussions were continuing.

The Los Angeles Times also reported on Sunday that EMI Group executives said it had not agreed to terms with Qtrax.

Sony BMG Music Entertainment, the second-largest music company, was not immediately available.

Allan Klepfisz, Qtrax's CEO told Reuters and other media outlets last week that it had deals with the major labels representing about 75 percent of all music sales to allow users to download songs through Qtrax for free.

The discussions around Qtrax, which allows fans to download songs for free, follows criticism from some that the music industry has been distracted by the fight against piracy, when it should have been developing alternative services.


Carrot and stick

Janus Friis, who once terrified the media industry with file-sharing network Kazaa, told the Midem conference that the industry was beginning to move from the "stick" to the "carrot" approach, citing legal online services Last.fm and Imeem as leading examples.

"You have the carrot and you have the stick, and you kind of need to use both, but the carrot has become much more important," he said. "Last.fm and Imeem are beginning to be great Internet services."

London-based Last.fm has more than 15 million active users and is known for its song-recommendation system among fans. It also announced a deal last week to allow users to stream a song for free, up to three times, while a link connects a user to a legitimate music store such as Amazon or iTunes.

Social network Imeem is also built around music, supported by advertising and has 20 million users. Steve Jang, Imeem's chief marketing officer, told Reuters the site commanded great loyalty from its users because it was much more than just a retail offering.

As part of the transition, Paul McGuinness, U2's manager, told the conference that the time had come for new thinking on how the music and technology sectors worked together, saying their "snouts have been at our trough feeding free for too long."

He touted the idea that music could be provided as part of a subscription service for an Internet service provider in the same way that some mobile phone companies have worked, with the revenue being shared.

But it is not just the payment systems that are changing.

When Guy Hands, the new owner of British major EMI, unveiled his plans for the struggling group recently, he said he would look into the role of corporate sponsorship arrangements, where an album or tour could be backed by a sponsor.

Veteran music promoter Harvey Goldsmith told Reuters that the idea of combining musicians with a brand was not new, but warned it had to be handled carefully.

"Some acts like the Arctic Monkeys would think their street cred was under attack," he said. "But the truth is it's an opportunity. You have to remember that a band is also a brand, and if you can link the two and it makes sense, then it's cool.

"But it's just as valid for new, up-and-coming acts as the established ones, because what better credibility can a big brand have than discovering a new band."