Playing a different tune

CANNES, France

When SpiralFrog announced a deal with a major recording com-pany to offer free, ad-supported music downloads, it made headlines as a bold but natural step — giving the label a share of the fast-growing Internet advertising pie, while squeezing out pirates.

Soon after Vivendi SA’s Universal Music Group came on board in August, EMI Group PLC also struck a deal with the formerly obscure startup. Suddenly, downloads from mainstream music catalogs were to become free.

But the concept appears to have suffered a 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 set to go live.

“There’s been a management shake-up,” Marc Jacobson of the law firm Greenberg Traurig told a conference at which Mr. Kent had been due to speak.

SpiralFrog still plans to launch, Mr. 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 3 percent to 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 Computer Inc.’s ITunes, the market leader in legal online music sales, according to Intent MediaWorks, a U.S.-based consulting firm specializing 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 that 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.

The market may be there, but doubts remain over whether the terms on offer can persuade enough established recording companies to enter it seriously.

Although SpiralFrog had signed up EMI and Universal before its launch plans were canceled, it had failed to win deals with the other two majors, Warner Music Group Inc. and Sony BMG Music Entertainment, a joint venture of Sony Corp. and Bertelsmann AG.

Thomas Gewecke, Sony BMG’s executive vice president for digital sales, rejected suggestions that hardened file-sharers could be tempted only by free offerings. “They don’t expect their Xbox to be free,” he said. “They don’t expect the ringtone on their cell phone to be free.”

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