From the NY Times. .
Universal Music Group and an Online Site Plan a Joint Venture to Challenge iTunes
By ERIC PFANNER, International Herald Tribune
By ERIC PFANNER
A new online music company said yesterday that it would make a huge catalog of songs from the world??s largest record company, the Universal Music Group, available for consumers to download free.
The company, called SpiralFrog, said its intention was to wean music fans, especially young people, away from illegal downloads and pirate music sites by offering a legitimate source, supported by advertising instead of download fees.
SpiralFrog is the latest to offer a challenge to Apple Computer??s hugely successful iTunes service, which allows consumers to download songs legally for 99 cents each, and its many smaller imitators. Though the venture is not the first to try a free ad-supported approach, the backing of Universal, with millions of songs in its catalog from thousands of artists like Eminem and Gwen Stefani, Elton John and Gloria Estefan, Count Basie and Hank Williams, promises to give it instant credibility and scale.
SpiralFrog, which is privately held and headed by Robin Kent, a former advertising executive, said it expected to start testing its service in the United States and Canada by the end of the year and would extend its service to Britain and other European markets next year.
The announcement reflects the music industry??s eagerness to experiment with various digital business models and to find a way to overcome piracy and illegal copying, which remain a big problem despite the record companies?? efforts to enforce their copyrights in court.
While the industry has tried to encourage the growth of legitimate alternatives like iTunes, some record executives have begun to chafe at Apple??s dominance in the online market, particularly its insistence on a ??one size fits all? pricing model, saying it has restricted the growth of digital sales.
For consumers, SpiralFrog??s free downloads will come with many more strings attached than Apple??s paid ones. Users of SpiralFrog will have to sit through advertisements and will be prevented by special software from making copies of the songs they download or from sharing them with other people.
They will have to revisit the SpiralFrog Web site regularly to keep access to the music they download. And the songs will be encoded in the Microsoft WMA format, meaning they will probably not work on Apple iPod portable music players.
The venture is not the first legitimate one to make music available free. Napster, a former peer-to-peer file-sharing scourge of the record companies, introduced an advertising-supported service this year that lets users listen to a few songs without paying fees. But Napster??s free service streams its music to users, rather than allowing them to download and store the files, as iTunes does.
Kazaa, another digital file-sharing network, agreed last month to settle copyright-infringement lawsuits with the music and movie industries. It is also expected to start a free-with-advertising service when it reintroduces itself as a licensed, legitimate distribution business.
SpiralFrog beat Kazaa to the punch with its own announcement, which was reported yesterday by The Financial Times.
??Offering young consumers an easy-to-use alternative to pirated music sites will be compelling,? Mr. Kent of SpiralFrog said in a statement. ??SpiralFrog will offer those consumers a better experience and environment than they can get from any pirate site.?
Mr. Kent is a former chief executive of Universal McCann, a media-buying unit of the Interpublic Group that is not connected to Universal Music.
Neville Hobson, a spokesman for SpiralFrog, said the company hoped to pursue licensing deals with the other major record companies ?? Sony BMG, EMI and Warner Music ?? to augment its deal with Universal Music, a unit of Vivendi.
SpiralFrog, which is based in New York, did not disclose the terms of its licensing agreement with Universal Music or how it would compensate the company for use of its copyrighted songs. Universal??s many record labels control about a quarter of the worldwide market for recorded music.
Given the fragmentation of the digital music business ?? the hundreds of would-be challengers to iTunes mainly have minuscule shares of the market ?? analysts said that new services like SpiralFrog would face difficult challenges, despite the lure of free music.
??Few service providers are currently in a position to provide the large audiences that advertisers require, and few pure music providers have the heritage of building a business funded by advertising,? said Michele Mackenzie, principal analyst at Ovum, a telecommunications and Internet consulting firm.
The music industry must also manage its relationship with Apple carefully, analysts said.
SpiralFrog took pains to discourage talk that its free-with-advertising model would threaten Apple??s pay-per-song service. Mr. Hobson, the SpiralFrog spokesman, said, ??It??s a very different model. It??s complementary to iTunes.?
