Allan Klepfisz, CEO of Qtrax, followed up his controversial appearance at Midem where he announced a largely vaporous service billed as "the world's first free and legal P2P service." Klepfisz had claimed his company enjoyed major label support that has yet to materialize in the form of licensing agreements that would allow Qtrax to populate its service with music.
At the tail end of the Digital Music Forum East in New York, Klepfisz was interviewed by Marty Lafferty, head of the DCIA (a P2P trade group of which Qtrax is a member).
Here's a paraphrased summary of what he had to say:
- Qtrax began as a standard P2P site five years ago, before the thorny legal issues had arisen. They began to arise, and we took a decision after 6 months to withdraw, after not having been approached by the industry at that point. We've been trying to get the licenses for the past five years.
- My wife manages some big Australian artists. They said they were losing a lot on P2P and wondered if there was a way to generate revenue from P2P.
- We have announced that we're exploring ways to take Qtrax public (it's currently a subsidiary of Brilliant Technologies).
- Our partners include Songbird (player) and Oracle (back-end). They should help us meet the demand for the tens of millions we expect to use the service.
- I can't go into the details, but we have been respectful of the licensing process since day one. We wanted to have the requisite licenses. We will announce them in due course, and for the first time, we will provide legal P2P.
- We intend on giving away the music, we do not intend on giving away the profits (for us or the music industry).
- Qtrax will not have intrusive ads. The reality is that the illegalservices have attracted enormous numbers of users. If we addspeedbumps, people will return to those services. That's preciselywhat we don't want to do. We want to create a service that's pleasantto use, content-rich, with extensive biographies and reviews forlesser-known bands. Also users can buy related DVDs, T-shirts, ringtones, and so on. Weintend on distinguishing ourselves as superior to the free unlicensedP2P services.
- The industry hasmade a reasonable demand for remuneration. Meeting what they want persong may be difficult for some distributors. But we think we can meet it. It's a very specific setup that we have [updated – I originally heard this as "an unreasonable demand"].
- We recognize that the music fan is going to be doing a lot of thingsaround music. If someone uses the browser to go to an illegal site, wecan encourage them to return. For us, it's very important that nomatter what a person is doing with music, that we introduce the optionto buy a music-based product.
- We expect there will be a lot of consolidation within our browser (from users' collections and the music they experience from the web).
- Is there a limit to how many songs people can download? The shortanswer is no. There could be a limitation that the labels enforce inthe future. There will be no limit on how many times people can listen to asong.
- The tracks do have DRM, and we don't shy away from that. Whenpurchasing a song, consumers want to do whatever they like. In ourcase, we're providing music for free and are using DRM principally totrack plays so we can figure out how to pay labels and artists. Thefile format is as good as MP3. We will be selecting a higher bit ratethan sometimes you experience on P2P.
- We thought we might have issues during the launch (spoken as an aside).
- In time, the tracks will be playable on devices. We will be making announcements about portables in the near future.
- Initially, Qtrax is just music. We were fearful about adding otherstuff due to X-rated video on P2P. Over time, we'll be addingvideo.
- We intend on fingerprinting every song we present, so that we're surewe're delivering the right track to the consumer. In time, P2P couldcontain as many as 70 million songs, many of them rare or liveversions, which consumers love.
- Qtrax will be a global service. Digital music sales sites can't begeography-agnostic due to different buying patterns. But anywherepeople view advertisements (online) makes sense for us.
- Qtrax will not contain spyware or other malware. I myself havedestroyed at least one laptop exploring our potential competition.
- Since Midem, we have been gratified by the degree ofsupport, although I can't get into specifics with any label. When people speak of anindustry as a monolithic group, they're making a mistake. Some in thelabel and publisher community are frightened by ad-supported music,
others are not. Many have recognized that many people are not payingfor music – the question is how to bring them in.
- In the days surrounding our launch, when we were the 742nd most traffickedsite on the internet, our illegal competitors' numbersdropped. After our [music-free] launch, their numbers rose back up again. We believe that our service will decrease usage of the unlicensed competition.
- Licensing negotiations are by necessity complex. If I were on therecord company side of things, I'd probably be doing what they'redoing. Finalizing contracts takes a long time. Even when you get tothe point of almost-finalization, it can take a while. Obviously,
everybody wants to do this in such a way that it's going to work. Wewant to make this experiment work to demonstrate that people can havefree music and the industry can make lots of money.
Marty Lafferty (DCIA helped launch Qtrax at Midem): This was aschizophrenic launch. At Midem, everything was very positive. Theconcerts were successful. Offsite, we Googled Qtrax news, and we werejust like "oh my god"... Everything seemed to come crashing down.
- We didn't have any sense of imminent controversy. One of the thingsabout experiencing a schizophrenic experience is making sure you don'twind up schizophrenic yourself…. It's been heartening that people havegone back to the work of trying to get us the licenses.
- We will be reintroducing the music progressively over the next few weeks.
- Our success might sell a whole hell of a lot more iPods.
- People haven't wanted to be illegal. They have wanted free music.
People are not going to insist on being illegal; they're going to comeinto a playing field, we believe, where they can get everything theywant and have it be legal.
- On the press backlash after the launch: We had to just turn our cheekand take it. I said we had support from the industry [here'swhat he said to me], and the press interpreted that as beingone thing when it was another. There was a hitch – I can't go into thedetails.
- On whether Qtrax licensing delays have to do with rumors of a MySpace or Googlead-supported service: There will be many ad-supported services coming,
and some will pan out. Experimentation is a good thing. We think that ourmodel has certain attractions to the user. A downloading service makessense, and we are prepared to pay certain industry minimums that otherservices maybe will not be able to pay. In total, there's arecognition that there has to be a change in the music paradigm. Weare proposing something that is most similar to what people arecurrently doing: downloading from P2P services.
Responses to audience questions
- You keep your downloads for as long as our licenses are good with the labels.
- There is a pool of advertising and we divide that pool according to the number of plays among the various stakeholders.
- Occasionally one can make a miscalculation. But if a company spends five years on licensing, one can presume that the company has madeprogress. I don't want to get into specifics. Soon enough the worldwill know which licenses we have. If we can't get the licenses, therewill be time for a second crucifixion.
- It's not an easy road to change fundamentals in the music industry.
Thankfully, we have gone down most of that road... We are very veryclose to the end of this long journey as far as I'm concerned.
