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Music biz balks at ad-funded downloads
Market may exist, but record companies not ready to take it seriously
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CANNES, France - There's still no such thing as a free lunch — just yet. But consumers now expect an increasing array of online media and services, from phone calls and maps to videos and even games, to be delivered without charge.
So when SpiralFrog, an obscure startup, announced a deal with Vivendi SA's Universal Music Group last August to offer free, advertising-supported music downloads, it made headlines as a bold but natural step — giving the record company a share of the fast-growing Internet advertising pie, while squeezing out pirates. EMI Group PLC signed up the following month.
But the arrival of ad-supported downloads from mainstream music catalogs appeared this week to have suffered a major setback. SpiralFrog sent its attorney to the Midem music industry gathering in Cannes to replace former CEO Robin Kent, who was ousted late last month — when the service had been due to go live.
"There's been a management shake-up," Marc Jacobson of law firm Greenberg Traurig told a conference at which Kent had been due to speak.
SpiralFrog still plans to launch, Jacobson said, but has no firm date. He declined to elaborate and made no comment on speculation that the company had been unable to sell enough advertising to meet royalty fees.
Despite a boom in download sales over the Internet and mobile phones, the music market as a whole is shrinking as digital revenue growth fails to offset a decline in CD sales. Total music revenues fell between 3 percent and 4 percent globally in 2006, according to estimates by IFPI, the industry's leading global body.
Illegal file-sharing accounts for up to 100 times as many song downloads as Apple Inc.'s iTunes, the market leader in legal online music sales, according to Intent MediaWorks, a U.S.-based consulting firm that specializes in digital distribution.
SpiralFrog and other embryonic ad-supported services promise a new approach to tackling piracy. Proponents see massive demand from peer-to-peer users who, they believe, would gladly put up with commercial messages in return for the peace of mind legality brings.
If you can't beat them, the theory goes, then at least make some money out of them.
"It's such a significant stream that, if you can monetize it and take it over, you can get paid a lot of money," said Les Ottolenghi, Intent's founding chief executive.
The attention generated by SpiralFrog "proves there is an interest level to find a solution to ad-based media and entertainment for the consumer," he said.
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