Update: Qtrax forced into humiliating U-turn as record labels back out

After a decade fighting to stop illegal file-sharing, the music industry will give fans today what they have always wanted: an unlimited supply of free and legal songs.

With CD sales in free fall and legal downloads yet to fill the gap, the music industry has reluctantly embraced the file-sharing technology that threatened to destroy it. Qtrax, a digital service announced today, promises a catalogue of more than 25 million songs that users can download to keep, free and with no limit on the number of tracks.

The service has been endorsed by the very same record companies - including EMI, Universal Music and Warner Music – that have chased file-sharers through the courts in a doomed attempt to prevent piracy. The gamble is that fans will put up with a limited amount of advertising around the Qtrax website’s jukebox in return for authorised use of almost every song available.

The service will use the “peer-to-peer” network, which contains not just hit songs but rarities and live tracks from the world’s leading artists.

Nor is a lack of compatibility with the iPod player expected to put fans off. Apple is unlikely to allow tracks downloaded from its rival to be compatible with iPods, but, while the iPod is the most popular music player, it has not succeeded in dominating the market: sales of the iPod account for 50 million out of 130 million total digital player sales. Qtrax has also spoken of an “iPod solution”, to be announced in April.

Qtrax files contain Digital Rights Management software, allowing the company to see how many times a song has been downloaded and played. Artists, record companies and publishers will be paid in proportion to the popularity of their music, while also taking a cut of advertising revenues.

The Qtrax team, which spent five years working on the system, promised a “game-changing” intervention in the declining recorded music market when the service was presented at the Midem music industry convention in Cannes.

The singer James Blunt gave Qtrax a cautious welcome. “I’m amazed that we now accept that people steal music,” he said. “I was taught not to steal sweets from a sweet shop. But I want to learn how this service works, given the condition the music industry is in.”

Qtrax, a subsidiary of Brilliant Technologies Corporation, has raised $30 million (£15 million) to set up the service, which is available in the US and Europe from today. Allan Klepfisz, president of Qtrax, said: “Customers now expect music to be free but they do not want to use illegal sites. We believe this . . . has the support of the music industry and allows artists to get paid.”

Ford, McDonald’s and Microsoft are among the advertisers signed up to support what is thought to be the world’s largest legal music store. The service says that adverts will be nonintrusive and will not appear each time a song is played. As with iTunes, customers will have to download Qtrax software. They will own the songs permanently but will be encouraged to “dock” their player with the store every 30 days so it can gather information on which songs have been played.

Jean-Bernard Levy, chief executive of Vivendi Universal, said the crisis in the music industry had been overstated despite EMI’s radical cost-cutting. He said: “Look at Universal – we have double-digit profit margins. But we would like strong competition from the other major record companies to help the industry grow.” Universal has poached the Rolling Stones from EMI and Mr Levy said that others could follow as thousands of staff and artists are made redundant.

On the appearance of Qtrax, Mr Levy gave warning that the lack of compatibility between competing digital music players was as big a problem as file-sharing. And Paul McGuinness, the manager of U2, said that the sound quality of MP3 downloads was becoming an issue for bands and fans. “There is a growing consumer revolt against online audio quality,” he said.

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