While U.K. artists and trade bodies argue over how to tackle illegal downloading, one potential commercial solution has closed after failing to meet demands for staged advances to major labels.

The Datz Music Lounge, an all-you-can-eat unlimited MP3 service, launched last October and was billed as a commercial solution to piracy. EMI Music and Warner Music signed up as licensees to the service, which cost £99.99 ($165) a year and allowed fans to keep the music when the year is up.

An EMI Music statement at launch described it as a "new and innovative way for consumers to gift digital music via high street retailers." Beggars Group and the Orchard were also persuaded by the unique offering, which featured a secure USB key to identify that the user downloading music was the paid-up subscriber. Customers were also able to burn music onto CDs.

Anna Cole-Morgan, a director of Datz, confirms to Billboard.biz that the company has ceased trading and is due to go into liquidation. It is understood that it would have been impossible to renew its license agreements as the Oxfordshire-based company was unable meet labels' demands for staged advances.

"The biggest problem was that we didn't get one of the other two majors [Universal or Sony Music] on board," says Cole-Morgan. She said that meant it was harder to drive sales and thus recoup the advances paid, which Datz never managed to achieve. The other major issue was that sister company Comment, which supplied mobile phones to Woolworths, was helping to finance the payments Datz had to make. But when Woolworths went into administration at the end of 2008 - it ceased trading January 2009 - that revenue stream dried up.

"We had a business that could afford to fund the advances," says Cole-Morgan, but after Woolworths' problems "from that day on we were struggling to meet the advances."

"Warner was extremely flexible, they loved the idea of the product, and EMI were too to an extent," adds Cole-Morgan

The demise of Datz coincides with a lively debate over how to tackle illegal file-sharing, ahead of the government announcing its final strategy in the fall. Today (Sept. 16) umbrella trade group U.K. Music reiterated its position in a statement, saying that it backed the government's proposals for technical measures and possible suspension of Internet accounts of repeat P2P offenders.

"Like all of society, like all creative businesses, the U.K.'s commercial music industry reflects a wide spectrum of viewpoints and opinions," said CEO Feargal Sharkey in a statement.

"Discussions over recent weeks have drawn us much closer together and helped us to realise with greater certainty our shared vision of the future. We continue to welcome government's support and intervention, both of which will be vital to ensure that those who create and invest in music have the opportunity to deliver their full potential and reap the benefits, rewards and promises of an ever-evolving digital marketplace." His comments were supported by the Music Producers Guild and the Entertainment Retailers Association.

However, the demise of Datz will not help with U.K. Music's hopes to drive P2P users to new commercial services.

"The idea of this product was always to combat illegal downloading," says Cole-Morgan, who says she feels "very guilty" about people who bought the product in its latter days. At launch it was available from stores including Sainsbury's and online retailers.

The licenses with Warner and EMI were due to run to allow new Datz Music Lounge customers to join any time until Dec. 31, 2009 and to allow them to download for a full year.

Cole-Morgan says that when the end came this month it was under pressure from EMI Music to meet its payments, and she suspects that the major would have been ready to take further action as "we've not been dealing with their commercial department for some time."

"I don't blame them, they have got financial issues," she adds.

"We needed an investor and in the current climate that was impossible to get," says Cole-Morgan. She adds that an attempt to get EMI Music to meet a potential investor who wanted to discuss the major's future support as a licensee was not successful.

EMI has yet to respond to requests for comment.