SpiralFrog is the company that intended to serve both consumers’ desire to get free songs and the music industry’s interest in making money.  "Listen to a tune, then watch a commercial" is the basic idea.  As Marshall Kirkpatrick recently noted, this approach lost the company $3.4 million in the third quarter.

So, on to the fresh infusion.  SpiralFrog received $2 million "through the private placement of Senior Secured Exchangeable Notes," according to a formal release.  "The Notes bear interest at 12 percent per annum, with interest payable quarterly, commencing January 1, 2008.  The entire principal amount is due on April 19, 2008.  The Notes are exchangeable into 2,325,582 common shares at the Exchange Price of $0.86, subject to certain adjustments."

Fascinating stuff, right?  Or not.  Either way, this isn’t the same thing as a well-known venture capital firm stepping up to support SpiralFrog.  The company plans to expand its operations and acquire "additional content for the site," however, so we’ll see how things pan out in the first quarter of 2008.
 

Pennywise normally sells between 60,000 and 100,000 albums and MySpace expects at least that many will take part in the promotion. "This happens in a time when the record industry has such a black eye," Josh Brooks, VP of Marketing for MySpace told Adweek.  "It’s a nice opportunity and a way to get your music out there."

For Textango, its about building brand awareness. According to the company’s CEO Shawn Dornian, "The overarching sprit is its breaking new barriers, doing new models and going against the status quo, which are all things we stand for". 

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"Music fans demand fast access to high quality audio and video files and they want their music free, but they’d still like the music owners to be paid for their work and creativity," said Joe Mohen, chairman and founder of SpiralFrog.

"Our answer to this seemingly impossible equation is to allow our audience to download songs and video at no cost-other than their time and attention-and to compensate music owners by sharing the ad revenue."

Users of the site will not be able to burn their downloads to a CD, but they can be played on digital music players. A notable downside is the content is not compatible with Apple computers or the iPod. The service will work with Windows PCs running XP and Vista.

Currently SpiralFrog has a library of 800,000 songs and 3,500 music videos. Music fans will be able to search by artist and genre and will have access to artist’s bios, reviews, discography, and album art. The service is similar to Yahoo Music Unlimited and Rhapsody minus a subscription fee. User will have to visit the site at least once per month or the songs that have been downloaded will not play.

The company has licensing deals with Universal Music Group and Broadcast Music Inc.

More than six in 10 respondents said they had used a P2P network to receive free downloads.

Andy Cooper of INTENT said, "More than 80 million US Internet users search and download files from P2P networks each month, 10 million or more at any one time."

"When consumers find the files they are looking for, they share files with friends through P2P, personal blog posts, adding the files to their social networking pages, or send them via e-mail, text or IM," Mr. Cooper added. "If advertisers sponsor that content, their programs can reach consumers across multiple Internet channels from one source."

The idea that music can be free, even if supported by ads, is met by controversy. Prince recently was criticized for giving away copies of his newest CD in copies of the UK Mail on Sunday, although he was paid by The Mail for the copies.

Companies like SpiralFrog and Qtrax are attracting users with the word "free." They have been receiving licenses from labels to create music destinations that are free to users and supported by ads.

Allen Klepfisz of Qtrax points out that an ad-supported model reflects current consumer behavior. "If you have a whole generation that believes it’s their birthright to have free music, you need to monetize it," he said. "There are now about three billion transactions a month in P2P, mostly illegal. The closest your business model is to current consumer behavior, the better its chance of success."

Of course, it’s the same record companies that subscribe to the ridiculous idea that DRM is the answer to the rampant piracy epidemic.

In response to this type of statement, label executives love to flash gaudy download figures from iTunes, claiming that the practice of downloading DRM laden tracks is catching on like wildfire.

What they will neglect to mention, however, is that the music market as a whole is losing ground, as revenues from digital music sites are failing to offset the consistent decline in CD sales. In 2006, total music revenues fell by nearly four percent according to IFPI estimates.

Another tidbit that conveniently gets swept under the carpet is that illegal file sharing accounts for up to 100 times as many downloads as those from iTunes.

This type of data supports the assertion that the record industry refuses to accept; DRM has absolutely no impact in discouraging digital music piracy.

There is a solution, however, should the greed infested fat cats at the major record labels choose to listen. Companies like SpiralFrog are looking to engage the consumer demand for free music by implementing an ad-supported framework, which provides a new outlet for monetization.

AP Business Writer Laurence Frost has more:

I wonder how much money and manpower that the major record labels flush down the drain by pursuing ridiculous lawsuits and developing useless anti-piracy technology.

Perhaps if they had some vision, and stopped gouging their artists for every last nickel, music industry revenues might actually turn around.

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There had already been reports a week or so ago (which started on a music message board) that the CEO had been ousted. Now it seems several senior executives and board members have also gotten the boot or otherwise headed for the elevator.

From the sounds of it, there was a large-scale management walkout. The story says that “three directors with strong music-industry ties resigned almost immediately after Kent’s departure,” and that in the days following that, “more directors walked out, as well at least six members of SpiralFrog’s senior executive team, including the chief marketing, strategy and operating officers.” Apparently the founder has stepped in and still plans to launch.

As Mike Arrington has written over at TechCrunch, and Steve Rubel writes here, the number of Web 2.0 companies (and I use that term loosely) that have either failed or are on life support continues to grow, including FilmLoop, Browster and others. But many of those were features rather than companies.

What I’d really like to know about SpiralFrog is what caused all those executives and officers to leave en masse (something that wasn’t a surprise to several people). Was it a lack of confidence in the company’s financial health? Meddling by the record companies? Personal issues? There’s obviously a lot more to this story.

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Mathew Ingram is a
technology writer and blogger for the Globe and Mail, a national
newspaper based in Toronto, and also writes about the Web and media at
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Due to be launched in beta later this year, SpiralFrog adds EMI artists like Sting, Nelly Furtado, and Kanye West. In addition to music downloads, the company also acquired a worldwide license to allow users to search for display EMI lyrics.

“We are very pleased to help launch SpiralFrog, said Roger Faxon, Co-CEO of EMI Music Publishing. It is a very exciting concept which fuses advertising with music downloads and other services to recapture consumer demand which has been hijacked by online piracy.”

Because nobody ever thought to let people listen for free by pairing up advertising with music before. I’ll bet corporate-speak master and SpiralFrog CEO Robin Kent, formerly of Universal McCann, is just delighted.

“Obtaining these rights helps ensure that SpiralFrog can provide young consumers with access to recordings from a wide range of artists that they want to hear,” he said. “We are delighted to obtain global rights to song lyrics as this is further value that we can add for our users, while driving even more advertising revenue for the music composers.”

Try not to romanticize it so much, Robin.

Kent called the agreement with Universal and EMI “clear signs that the music industry recognizes the revenue potential of an advertising-supported business model.”

That’s better.

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Startup SpiralFrog signed an agreement this week with UMG, to open up the company’s music catalog, which includes music from GWAR to Johnny Cash. Songs and videos will be available for download in the U.S. and Canada on an ad-supported network, complete with digital rights management (DRM) technology embedded. That means it has to stay on the computer if you want it for free.

“Offering young consumers an easy-to-use alternative to pirated music sites will be compelling,” said Robin Kent, SpiralFrog’s CEO. “SpiralFrog will offer those consumers a better experience and environment than they can get from any pirate site.”

That “better experience” he speaks of means the ability to download legal digital files (no RIAA legal notices) with no viruses or spyware.

“We want to provide the best environment for everyone – our partners and the recording artists, as well as consumers,” Kent said. “Piracy continues to be one of the biggest issues facing the music industry where illegal file sharing and unauthorized CD burning are the prime means of music piracy. Digital rights protection will help us combat piracy and provide peace of mind for the record labels and the artists.”

Kent cited research indicating that consumers are more than willing to ‘pay’ for their content by watching targeted advertising online, where ads are part of the usual landscape.

“We believe SpiralFrog will deliver an audience we highly desire and need to reach,” said advertiser Oscar Feldenkreis, Vice-Chairman, President and COO at Perry Ellis International, Inc.

“Our audience is heavily into music and can be more easily reached on the web. We see SpiralFrog as an ideal place for us to communicate and build lasting relationships with our core audience and which give us unique new revenue opportunities.”

The rhetoric they use takes to fun right out of it. Leave it to grey-suits to take free music and turn it into a PowerPoint presentation. Next they’ll be using the phrase ‘target audience.’

“Our target audience is the driving force behind the changes in how music is created, discovered and consumed,” Kent said. “They are the future of music.”

I knew it. A target audience is never the driving force behind how music is created, Mr. Kent. It’s the driving force behind how Paris Hilton is created, whom we can have less of, thank you.

SpiralFrog’s target audience is between the ages of 13 and 34, what Kent called “an advertiser’s dream.” Sigh. Is it a music-centric experience, too?

“This is the core audience we will attract by building a music-centric experience and destination that is second to none, legally delivering what the majority of users want – content they pay for only with their time. It’s content that advertisers are willing to pay for on their behalf.”

Figured as much. Better leverage your core-competencies and best practices in order to propel your client-server architecture into a ubiquitous multimedia experience. While you’re doing that, the rest of us are gonna rock the @$%! out!

Thanks for the free music anywayjust as long as you don’t pull an AOL or Sony and start rooting around in our computers and popping up advertising every 30 secondsyou’re not, are you?

SpiralFrog will launch in beta later this year.

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