EasyGroup founder Stelios Haji-Ioannou said on Wednesday that "easyMusic" would incorporate the principle of 'copyleft', which meant customers did not have to adhere to copyright laws, allowing them to download songs for free and exchange them with other people infinitely.
But he stressed this would apply only to songs produced by unknown artists who wished to gain publicity.
"Music should be free," Haji-Ioannou told reporters, adding that would-be pop idols should not have to pay to copyright their songs.
"Why waste money with lawyers if you don't know if your music is valuable?" he said.
Customers wishing to download music by well-known artists will have to pay however, Haji-Ioannou said, a day after US computer maker Apple launched the European arm of its iTunes online music store, which will charge 99 eurocents ($1.20) for each song downloaded.