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Wednesday, August 30, 2006 - Page updated at 12:00 AM

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All music downloads from largest record seller will be free

Los Angeles Times

LOS ANGELES — Music fans for years have been telling record labels what they want to pay for downloaded songs: nothing.

The labels now are starting to agree that free might work for them, too.

Universal Music Group's announcement Tuesday that it is licensing its digital catalog to a Web site offering free, legal downloads marks a significant shift in an industry long criticized for fighting, rather than harnessing, the Internet's potential.

The Web site, backed by New York company SpiralFrog, hopes to make money selling advertisements that play while songs download.

In addition to Universal's artists, which include U2 and Kanye West, SpiralFrog is seeking to license the catalogs of Sony BMG Music Entertainment, Warner Music Group and EMI Group.

"This is really promising that the labels are going to finally stop kvetching and start thinking intelligently about where their money's going to come from in the 21st century," said Aram Sinnreich, managing partner of Radar Research. "SpiralFrog is one small step for the record labels, one great leap for music kind."

Two big buts: The tracks cannot be burned to a CD, and the service will not work with Apple Computer's Macintosh computers or iPod music players.

The deal between SpiralFrog and Universal Music, the world's largest record seller, reflects how the entertainment industry is scrambling to find new ways to make money as the Internet rewrites the rules of distribution and marketing.

"If someone wants to buy a million CDs from us and then give them away on a street corner, that's fine with us as long as we get paid," said Larry Kenswil, a top digital-media executive at Universal Music.

The record company will receive an upfront payment from SpiralFrog and a portion of the company's advertising revenue. "Anything that encourages people to get music from legitimate sources is a good thing."

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But SpiralFrog's success is far from guaranteed.

Record labels have spent much of the seven years since the debut of Napster trying to convince music fans not to download free songs from online file-sharing networks. They have fought the networks in court and sued thousands of individual users for copyright infringement.

And online ad revenues are unlikely to replace the $33 billion spent worldwide last year on recorded music. Even with the success of outlets such as Apple's iTunes Music Store and Seattle-based RealNetworks' Rhapsody online music service, labels still make most of their money selling compact discs — although those sales have been declining.

"There's a real risk that, over time, consumers will eventually lose their willingness to pay for music at all," said analyst Mike McGuire of research firm Gartner. "You have to drive a lot of ads to a lot of eyeballs to make as much money as iTunes earns by selling songs for 99 cents each."

Finally, there's the question that cuts to the core of SpiralFrog's business model: Will fans sit through a 90-second ad to get free music?

Despite the conventional wisdom that young people don't want to be bombarded with marketing messages online, ads are some of the most popular video clips bouncing around the Internet. Teenagers routinely sign up to receive promotions and e-mails from their favorite brands.

"The currency we're using is time," SpiralFrog chairman Joe Mohen said. "Young people are already downloading free songs illegally on peer-to-peer networks. We believe that advertisers will pay to show those consumers ads, and that those payments will rival what music companies get from iTunes or other online retailers."

SpiralFrog's site is expected to debut this year. A beta version is expected to go live in December. When it does, users will be able to save downloaded tunes to a hard drive or a portable music player. Users also will have to visit the Web site once a month to watch more ads. Otherwise, digital locks will make it inaccessible.

Some information was provided by The Associated Press.

Copyright © 2006 The Seattle Times Company

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