A website which promised to give music lovers the world's first legal file-sharing service was forced into a humiliating climbdown today after it emerged that the company had not secured the backing of the record industry.

Qtrax, a New York firm, unveiled its service with a glitzy £500,000 launch in Cannes at the weekend, hiring stars including James Blunt, LL Cool J.

Today it emerged that none of the four major labels had done deals with the site, putting a large dent in the promised catalogue of 25 million songs and prompting allegations that the site's founders had misled fans.

EMI, Warner, Sony BMG and Universal all confirmed that they had not agreed deals with Qtrax which would allow fans to download their music for free in return for being exposed to advertising on the site. Warner and Universal said that they were in negotiations with the site.

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Qtrax's founders insisted that they had not misled fans, and that they would not have launched the service if they had not secured the backing of the industry. They admitted, however, that the "ink hadn't dried" on some of the deals.

Qtrax executives spent an estimated £500,000 at a music conference in Cannes trying to convince the industry that their site would allow labels to begin recovering the losses that have resulted from widespread illegal downloading and the subsequent decline in CD sales.

The site purports to work by allowing fans to download and own songs that they could play on their portable media players – for free – so long as they put up with a limited amount of advertising on the Qtrax site while searching for songs.

A spokesman for Universal, the largest of the labels, told Times Online today that it was "in discussion" with Qtrax, but that no agreement was in place. A source at Warner said: "Warner Music Group has not authorised the use of our content on Qtrax's recently announced service."

Both Sony BMG and EMI also confirmed to Times Online that Qtrax did not have the right to use their recorded music catalogue - contradicting a statement on Qtrax's site, which was down periodically during the morning because of 'overwhelming demand', that its users would have access to 25 million songs.

Questioned by The Times in Cannes today, Alan Klepfisz, Qtrax's flamboyant chief executive, insisted that he had not misled the industry or music fans.

"We are not idiots," he said."We wouldn’t have launched the service in front of the whole music industry unless we had secured its backing. We feel we have been unfairly crucified because a competitor tried to damage us. Everyone is very upset."

Mr Klepfisz's company put posters in Cannes claiming that the launch of the service would be the "second coming," and hired stars including James Blunt, LL Cool J and Don Henley of the Eagles for the event.

"We do have industry agreements including the major labels. Even today we are working on more deals," Mr Klepfisz said. He added that although "ink hadn't dried" on some of the deals, Qtrax still planned to deliver on its promises "within months."

The music industry has for a long time been flirting with the idea of delivering songs 'for free' via the internet and making money through advertising, but so far all the sites which offer such a service let listeners 'stream' songs, rather than download them.

The advantage of streaming – for the record labels – is that the user must be connected to the internet while they listen, meaning that ads can be delivered during the session. But most music players – including iPods – aren't yet connected to the internet, meaning such services have limited appeal.

Qtrax has said its users will be able to download songs – making it potentially much more user-friendly, but also more of a headache for the labels, who want to be able to closely monitor what users are listening to.

Qtrax users have to download software to use the service, and are also encouraged to 'dock' their music player with their computer every 30 days so that the service can ascertain which songs have been played.

The service, which uses Digital Rights Management software, is also hampered by the fact that it is not yet compatible with Apple's iPod, the market leader in portable media players. Qtrax has said an iPod-compatible version of its software will be available as soon as April.

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