SpiralFrog Is Gone, Myspace Music Is Here

I don't know if you would call it the big news of last week.  But the demise of SpiralFrog, an advertising revenue-based music service, certainly is interesting news for anyone following the world of digital music stores. 

Launched in September, 2007, SpiralFrog offered nearly a million tracks for free to users who were willing to view an occasional ad.  Though there were many skeptics, I felt it was important to support this new business model.  Partially, my support is motivated by the saying, "Those who cannot remember the past are condemned to repeat it" (attributed to poet and philosopher George Santayana).  After all it was the major labels brazen refusal to adopt any peer-to-peer business model that lead to the rampant, and still uncontrollable, distribution of free music. 

So with eyes wide open, I reached out to SpiralFrog to strike a deal.  The basic business terms were similar to other subscription models.  Essentially, there is a pool of money each quarter and a content provider gets a pro rata share of a percentage of it.  In SpiralFrog's case, the pool of money was supposed to come from online advertisers in lieu of subscribers.  

The biggest difference with an ad-based versus a subscription service is that the music feels like free in the former.  In fact, it really is free from the user's perspective.  With services like Napster or Rhapsody, there is a monthly subscription fee that users will see on their credit card bills.  But with SpiralFrog, there was no such billing.  Everything was free as long as you watched or clicked on an ad.  (It doesn't really matter that the specifics were a bit more complicated.  This is the basic idea of an ad model.)

What went wrong?  Isn't free good enough?  Obviously not. 

For years, every digital guru has been predicting the eventual success of the subscription model.  A good friend and ex-boss of mine (Gerd Leonhard) has described the future with "music being like water", flowing freely and feeling like free.  Three years ago, David Goldberg (former head of Yahoo Music) declared, at one the ubiquitous digital conferences in LA, that the a la carte model was dead. Most in attendance agreed.  Some, like myself, wondered if this was really an accurate statement since services like iTunes still rule the roost.  The two most successful services, iTunes and AmazonMp3, are still a la carte, permanent download business models.

This doesn't mean that a la carte services are the long term view.  It is quite likely that eventually we'll be consuming music much like any other utility.  In my opinion, that is still probably several years away.  In the meantime, it is important to closely examine the success or failure of the all-you-can-eat services whether they are subscription based or advertising based.  

I don't know what my colleagues first thought of when the news of SpiralFrog hit the wires.  For me, I immediately thought of the newly launched Myspace Music program, another primarily ad-supported model.  I'm happy to say that BFM recently closed our deal with MSM and our content should be appearing there very soon.  So why I am excited to be delivering my content to another ad-supported service just when another ad-support service closes down?  The answers lies in the reasons for SpiralFrog's failure and MSM's likely success.

First of all, the music on MSM is already free.  There is no need for users to click on anything or come back once per month to view ads.  The ads on MSM are always flowing as does the music.  I know that many will say that I am comparing apples to oranges since MSM is not offering tethered downloads like SpiralFrog.  But the vast majority of MS listeners want to do just that:  listen.  They are not interested in a quasi-ownership of the music that requires some action on their part (e.g., a monthly visit or subscription fee).  They want to use MSM to explore and discover new music.  Having DRM-protected downloads that can't be loaded on your ipod or easily transported is of no interest (obviously) to most music consumers. 

Secondly, MSM already has the eyeballs.  Any new service, whether is is a subscription, ad-based or a la carte, has a primary challenge of convincing users to change their buying habit.  "Don't go there, come here."  It was an equally unlikely proposition that SpiralFrog was going to create a new pool of buyers rather than attracting uses who had already become accustomed to using another site.  Their service was only going to survive if they got enough eyeballs (aka ad impressions or clicks) to generate significant ad revenue.  This is a tall order nowadays with so much competition for consumer's attention.  Myspace is already selling billions of ads and generating hundreds of millions of dollars in ad revenue.  This is an advantage that SpiralFrog didn't have.

Thirdly, all of SpiralFrog's revenue was designed to come from advertising.  MSM is aligning with AmazonMP3 to provide it with a download functionality.  For content owners, that is great news.  The success of MSM is not going to be judged solely on the pro rata share of ad revenue that a track has.  Artists will also be able to derive benefit from the additional permanent downloads that MSM will likely create.  Not only does this provide artists with an additional revenue stream, it provides MSM with one, too.  They can generate revenue thru their affiliate relationship with AmazonMP3 as well as their ads.  This is a tremendous advantage that SpiralFrog didn't have.  Offering permanent downloads as an alternative buying option is already quite successful with services like Napster and Rhapsody.  It is not well known, unfortunately, that these services give consumers an option to purchase DRM-free music which can be burned to a CD or put on any MP3 player.  So having this option on MSM is to be expected.

Saying good-bye to SpiralFrog, or any of the many other failed services, is not much fun.  I don't think that their absence will create even a blip at the bigger services.  Yet, experiments such as this are good for the industry and provide lessons to be learned.  I intend to support as many new services as I can and I hope that the creative thinking that spawned SpiralFrog continue to generate new business models.  

Comments

[Kelly Lefkowitz]

A pity that went wrong, but I have always maintained that the best model is the 3rd Party Payer Model (3PP).

There are companies that would be happy to collect data from you and would be willing to pay for your music in return for being able to lob an occasional question your way.

For instance, a shoe manufacturer may be willing to pay a couple of bucks a month to quiz you about your sports and recreation habits. This info become useful toward selling you shoes, equipment, vacations, and even health insurance.

Instead of depending on pageviews, video CPMs or CPC/CPA metrics, the music owners are getting paid for the music, the 3PPs are getting valuable marketing information that is likely to stimulate sales, and the subscriber is getting music for no cash outlay.

Imagine, you buy a new cell phone and you get it preloaded with your favorite songs. You think AT&T wouldn't kill to have info on your calling habits?

I used to use car companies as an example, but I don't think they can afford it anymore. Too much spent on bonuses.