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updated 1/28/2008 4:40:20 PM ET 2008-01-28T21:40:20

After years of fighting the Wild West of freely downloaded music, the mainstream music industry welcomed a former desperado to their annual schmoozefest Monday, highlighting the difficulty of their search for a solution to plunging CD sales.

And that solution might be: give music away legally and find another way — such as advertising — to make money.

Participation was down at the annual MIDEM music business conference at the seaside resort of Cannes, reflecting the failure of digital music sales to make up for crumbling revenues and the billions of dollars being lost to music piracy — illegal downloads outnumber the number of tracks sold by a factor of 20 to 1 according to industry body IFPI.

Yet the theater was packed when Janus Friis — co-founder of Kazaa, the music-sharing service once reviled by record levels — addressed participants.

Friis, who was presented as an Internet entrepreneur and a grandfather of digital music distribution, gave his backing to the latest venture making a lot of noise at MIDEM: Qtrax, which shows both the interest in making giveaways pay — and the difficulty of putting the deals together.

A revamped online ad-supported file-sharing service, Qtrax promises to offer unlimited, free music downloads. It was launched amid a blizzard of publicity in Cannes, including champagne, snazzy slogans and invite-only concerts from celebrities including James Blunt and LL Cool J.

After lunch with Qtrax CEO Allan Klepfisz on Saturday, Friis said he would have liked to create "an advertising supported service" for Kazaa — if only the record labels had given their blessing.

"We were trying to do the same things," he told delegates.

"But we couldn't do it. The timing was just like, so off."

Yet even as record labels start embracing new technologies — Sony BMG Music Entertainment became the last major music label to start selling music online without copy protection this month — Qtrax showed Cannes the birthing process can be extremely difficult.

The Web site service had not even gone live when Warner Music Group Corp. issued a statement denying Qtrax's claims it had given the service permission to give away its music.

Two other major recording companies, Universal Music Group and EMI Group PLC, later confirmed they did not have licensing deals in place with Qtrax, noting discussions were still ongoing.

A call to Sony BMG Music Entertainment was not immediately returned. Thomas Hesse, president of global digital business and U.S. sales at the label, is quoted by Qtrax as saying "we have completed this agreement with Qtrax."

On Sunday, Klepfisz admitted discussions with the labels were not easy.

"A colonoscopy is relatively painless in comparison," he told participants.

Qtrax, which had claimed it had backing from all the major record labels, is expected to issue a statement later Monday.

The New York-based service was among several peer-to-peer file-sharing applications that emerged following the shutdown of Napster, the pioneer service that enabled millions to illegally copy songs stored in other music fans' computers.

Qtrax shut down after a few months following its 2002 launch to avoid potential legal trouble. The latest version still lets users tap into file-sharing networks to search for music, but downloads come with copy-protection technology known as digital-rights management, or DRM, to prevent users from burning copies to a CD and calculate how to divvy up advertising sales with labels.

Downloads can be stored indefinitely on PCs and — unlike several competing services — be transferred onto portable music players.

The Web site started offering limited service Monday morning, although users will have to wait until Feb. 29 for portability. An "iPod solution" for Apple's popular player won't be available until April 15, Qtrax said.

For an industry that has traditionally relied on paid-for services, advertising was greeted cautiously in Cannes as a replacement for consumers' cash.

"I would like anybody to succeed in this area but there are big challenges," said John Kennedy, CEO of the International Federation of the Phonographic Industry, or IFPI. "I don't see how Qtrax has resolved the challenge of providing adequate revenues."

Steve Purdham, CEO of We7, the ad-funded music download service backed by Peter Gabriel, said advertising is catching on — slowly.

A year ago at Cannes "I was told there was no way any ad-supported model would work," he said.

"The conversations that are going on now are much more open. In the next twelve months, although ad-funded today is economically not really 100 percent viable," it is likely to become "significant" as "an additional model to the industry."

While the record labels' battles against Internet entrepreneurs like Friis may not have won them consumers, the experience may yet help help stamp out piracy.

Scarred by his legal fight with the music industry, which cost Kazaa $115 million, Friis says he has gone straight with his new venture, Joost, which delivers video over the Internet onto PCs under deals with content providers including Viacom, CBS, CNN, the NHL, Sony and others.

"When we started Joost we certainly didn't want another, like, five years of World War Four litigation with the entertainment industry so we were kind of had to choose to do it in a very legitimate way which ultimately is going to be the best business."

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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