Possibly Free, Legal Music Downloads

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Reuter Article

By Yinka Adegoke and Mark McSherry

NEW YORK (Reuters) - SpiralFrog, a new online music service, on Tuesday said it reached an agreement with Universal Music Group to offer free downloads of its songs and is trying to reach similar deals with other record labels.

The service, to be launched in December, experiments with a new business model that is funded entirely by advertising, as opposed to the pay-per-song model of Apple Computer Inc.'s market-leading iTunes music store.

While the idea of free, legal downloads will likely appeal to consumers, record industry executives say it remains to be seen whether SpiralFrog can attract enough advertising revenue to pay record companies for their catalogs.

The site also needs to sign on other major labels, such as EMI Group Plc and Warner Music Group Corp., to offer enough songs to attract strong user traffic. Both record labels said they were in talks with SpiralFrog.

New York-based SpiralFrog said it intends to share advertising income with its partners.

"The (record companies) are keen on discussions about the model, but those discussions are complicated," Lance Ford, chief marketing officer for SprialFrog, said by telephone.

Universal Music, the world's largest record company and a unit of Vivendi, has agreed to make its catalog available for free downloading from SpiralFrog in the United States and Canada.

This means consumers can log on to spiralfrog.com and download songs from Universal's roster, which includes U2, Gwen Stefani and The Roots, in the Windows Media format for their computers and compatible music players.

A source close to Universal Music told Reuters SpiralFrog agreed to pay upfront for the right to use its music for the new service. No financial details were available.

"This is not a challenge to any one model," said the source. "It's just another way for consumers to get legitimate non-pirated music."

SpiralFrog is the latest business model to try to use advertising to fund the distribution of music. Apple's shares fell 2 percent in early trading on Nasdaq.

"The challenge is going to be whether there's enough advertising revenue to drive sales volume," said Mike McGuire an analyst at Gartner Research. "And as we know in online music, if you don't have all four of the majors plus a significant number of independents then you don't have a thriving store."

SpiralFrog said its research revealed that consumers are willing to "pay" for their content by watching non-intrusive, contextually-relevant, targeted advertising. Its target audience is people between the ages of 13 and 34.

EMI and other record companies are also testing advertising- or branding-supported models with other partners, including Coca-Cola Co. and PepsiCo Inc., as well as peer-to-peer services Qtrax and Mashboxx.

EMI confirmed it has been in talks with SpiralFrog. A spokesperson said EMI is "experimenting with a number of different business models," adding that the "ad-supported approach is one that we've certainly been pioneering."

Warner Music Group said it has had discussions with SpiralFrog but would not comment further.

According to SpiralFrog's Web site, chief executive Robin Kent is a former chairman and CEO of media communications agency Universal McCann Worldwide. Its board of directors includes Jay Berman, former chairman of the global music trade body IFPI, and Ralph Simon, a former senior music executive who chairs the Mobile Entertainment Forum in the United States.


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