The Failure of Free Music
The last time we heard from our friends at doomed free music service Qtrax was last March when they launched for the fourth time in about as many years. The service launched with only subdued support from the major labels: EMI said that they had signed a “short term agreement”; Sony and Universal did not comment at all; Warner said they did not license their content to Qtrax. Since its dubious March re-launch, absolutely no new music has been added to the catalog. All tracks are tethered to the computer and wrapped in the obsolete Windows Media DRM requiring the Microsoft Silverlight media player for playback. CEO Allan Klepfisz promised a mobile client within weeks of the launch, but that has yet to materialize. Qtrax launched in 12 countries (Argentina, Australia, Canada, Chile, Colombia, Dominican Republic, Fiji, Malaysia, Mexico, New Zealand, Singapore, US), but as of last week the site only had 730 daily visitors and 730 daily page views, according to Wolfram Alpha. Sounds like their entire user base is in Fiji.
At the time of the launch, Billboard wrote:
But maybe it’s too late — for the U.S. market, at least. The Qtrax model, which placed an emphasis on downloading, now seems better suited for an earlier age. In January 2008, consumers were more firmly rooted in downloads. The iPhone had been out for only about seven months. Vevo didn’t yet exist. Lady Gaga, who now has over 1 billion YouTube streams, had net yet released her first album.
Since then, consumers have started to shift away from downloads and toward the cloud. So have investors. The major venture capital dollars have flowed into cloud-based services that emphasize streaming and caching, not downloading.
Most worrisome is the product itself, the preview version, a confusing experience to anyone weaned on more user-friendly music products like iTunes, Rhapsody or, well, anything else but this. Finding and listening to music on Qtrax is a cumbersome experience that seems out of place in a market filled with many slick, feature-rich, multi-platform services. If the hype over Spotify teaches us anything, it’s that a music service needs to be an incredibly well designed product. Clutter doesn’t work.
Everyone remembers the million-dollar egg that Qtrax laid at their MIDEM launch in January of 2008. At that time Klepfisz announced to the world press that he had deals with all of the major labels only to have every major label issue denials the very next day. Since then the media has paid little attention to the company, its credibility having been completely obliterated.
But that didn’t stop our man Klepfisz.
Even though he has not filed any reports with the SEC in years, or held a shareholders meeting, he marched to China. In October of 2009 he announced a huge search deal with Baidu and an impending China and Pacific Rim rollout that would commence that month and extend through the end of 2009. Didn’t happen.
One of his problems was money. After having been sued by numerous investors and vendors, including the IT consultants he hired for his MIDEM launch, Klepfisz was hit with the mother of all lawsuits–he bounced a $1.8 check to Oracle. Klepfisz said that it was nothing but “a little tiff”. He ignored the suit, and when Oracle moved for a default judgment, he hired an attorney to make the classic “the dog ate my homework” defense to the judge. The strategy slowed down the process for a couple of years, but ultimately did not work. Three weeks ago a federal judge in Oakland, CA granted Oracle a judgment for $1.8 million plus interest, bringing the total to a little over $2 million. Additionally, the court ordered that Qtrax had to return all copies of Oracle software in their control or possession.
Good news for Oracle, right? Not really. John Fife, a Chicago investor, sued Klepfisz for $1.3 million, got a judgment, and apparently worked out an arrangement with Klepfisz, only for the embattled CEO to renege. So Fife brought a motion for contempt of court and in the process a New York state judge froze all of Klepfisz’s personal assets, ordering him to appear in court within 30 days to testify upon penalty of incarceration. So I guess Oracle is going to have a hard time getting the bank to cash that settlement check…again.
But let’s not stop there. Last week four private investors in Flushing, NY sued Klepfisz for an aggregate of $250,00 plus interest and attorney fees. According to the filings, Klepfisz borrowed the money in May of 2009 at an interest rate of 9% per year. (filing 1, filing 2, filing 3, filing 4) Obviously he decided he didn’t have to pay them back and of course he can’t get to his funds in order to hire a lawyer to defend the suits, even though he typically just doesn’t show up in court and takes a default judgment . He clearly knows how to game the system.
You’d figure that after over eight years and more than a reported $50 million there’d be more than 730 users and millions in judgments. This guy is sued more often than GM! So where did all the money go? Certainly not to the labels, they’ve kept him on the shortest of leashes. It sure isn’t in the technology or web site. Maybe he borrows money to settle lawsuits, then gets sued for not repaying those loans? Nah. Klepfisz does have a reputation for enjoying 5 star hotels and Singapore Airlines first class compartments. We’ll probably never know where all the money went. But I bet that Bernie Madoff could figure the whole thing out.