August 29, 2006
Universal Backs Free Music Rival to iTunes By FT.COM
Universal Music, the world's largest music company, has agreed to back a new venture that will allow consumers to download songs for free and instead rely on advertising for its revenues.
The new service, known as SpiralFrog, represents a departure from the 99-cent per-song business model made popular by Apple's iTunes store. It will begin operations in December.
Universal's support reflects music companies' willingness to experiment as they try to capture some profit from the boom in digital distribution, which is still dominated by illegal file-sharing networks.
In spite of iTunes' popularity, a report released last month by the International Federation of Phonographic Industries revealed that there are still roughly 40 illegal downloads for every legal one as consumers continue to flock to peer-to-peer networks.
"Offering young consumers an easy-to-use alternative to pirated music sites will be compelling," said Robin Kent, who is SpiralFrog's chief executive and the former head of the Universal McCann advertising agency. "SpiralFrog will offer those consumers a better experience and environment than they can get from any pirate site."
Customers will be able to download an unlimited number of Universal songs to their computer and one other device. They will not be able to transfer those songs onto a compact disc, and they must visit the site at least once a month to maintain access to their music.
Mr Kent has held discussions with the three other major labels â?? Warner, EMI and Sony-BMG â?? and is hoping that they will be lured by the surge in online advertising. Merrill Lynch last week upped its forecast for the sector's growth, predicting that it would expand by 35 per cent this year in non-US markets to $11.6bn as companies follow young consumers onto the internet. In the US, growth is expected to be
Perry Ellis, the fashion company, has said it will advertise on SpiralFrog, while Levi's, Benetton, Aeropostale and others have expressed interest. "Our audience is heavily into music and can be more easily reached on the web," said Oscar Feldenkreis, president of Perry Ellis International.
Other music services have also begun to embrace an advertising-supported model. The new Napster, for example, allows consumers to listen to up to five tracks for free while they view advertising. Meanwhile, video sharing sites, such as YouTube, have held talks with music companies about showing music videos, which would then be supported by advertising.
At the heart of these ventures is the proposition that young consumers will be willing to endure advertising as the price for their music. Mr Kent said that his research revealed that they were receptive as long as the brands and products were relevant to the audience.
http://www.nytimes.com/financialtimes/business/FT20060829_24058_1741.html?hp&ex=1156910400&en=83e5692ad12f54e1&ei=5094&partner=homepage
