• BusinessWeek, Tuesday, October 31, 2006 11:45 AM

The original Napster--along with Grokster, Morpheus and other peer-to-peer music file-sharing services--are now a thing of the past, after the Supreme Court ruled that companies enabling users to swap copyrighted files could be sued. But the practice of illegally swapping music for free thrives, because other countries don't care if U.S. record companies are suffering from copyright infringement.

This year, between 300 million and 500 million files were pirated each day, according to measurement firm ArtistDirect--a fact that dwarfs legal transactions from Apple's iTunes, which for the most part, remain unprofitable.

Enter the ad-supported music services; many have been able to secure deals with the big record labels. Qtrax, a former pirate, is now trying to go straight with new licensing agreements, and Russian rogue Allofmp3.com is also exploring an ad-related model. SpiralFrog is being created precisely with that idea in mind.

"It seems to us that it might be difficult for the music industry to carve itself out as the one area that isn't advertiser-supported," says Qtrax founder Allan Klepfisz, who thinks the transformation of the music biz to an ad model is inevitable.

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