(from an article on the Financial Times
By Joshua Chaffin and Aline van Duyn in New York
Published: August 29 2006 05:02 | Last updated: August 29 2006 05:02Universal Music, the world’s largest music company, is backing a start-up that will allow consumers to download songs for free
. It will rely on advertising for its revenues, offering a different business model from that of Apple Computer’s popular iTunes music store.
The move reflects music companies’ willingness to experiment as they try to capture some profit from the boom in digital distribution still dominated by illegal file-sharing networks.
The service, SpiralFrog, represents a departure from Apple’s 99 cents-a-song business model and other legal download services which charge a subscription fee by being completely free. It is due to start up in December.
A report released last month by the International Federation of Phonographic Industries revealed there were still 40 illegal downloads for every legal one.
Although Apple’s iPod and its iTunes music download service has 80 per cent of the market for legally downloaded music, competition is expected to hot up in the run-up to Christmas.
This year, the IFPI has predicted that 60m music players will be sold worldwide, many of them MP3 players not compatible with Apple’s services.
As well as start-ups such as SpiralFrog, established companies are getting ready to flex their muscles. Microsoft is to launch Zune, which will offer music players and a music download store. MTV has launched Urge, a service that has downloadable music and music videos via subscription.
“Offering young consumers an easy-to-use alternative to pirated music sites will be compelling,” said Robin Kent, SpiralFrog’s chief executive and the former head of the Universal McCann advertising agency.
Mr Kent has held talks with labels Warner, EMI and Sony-BMG and hopes they will be lured by the surge in online advertising.
Merrill Lynch last week raised its forecast for the sector’s growth, predicting it would expand by 35 per cent this year in non-US markets to $11.6bn (£6.1bn). US growth is expected to increase by nearly 30 per cent to $16bn.
Perry Ellis, the fashion company, said it would advertise on SpiralFrog. Levi’s, Aeropostale, Benetton and others have expressed interest. “Our audience is into music and can be more easily reached on the web,” said Oscar Feldenkreis, president of Perry Ellis International.
Other music services are looking to advertising for their revenues. The new Napster allows consumers to listen to up to five tracks for free while they view advertising. Meanwhile, video-sharing sites, such as YouTube, have held talks with music companies about showing music videos, which would then be supported by advertising.
Mr Kent said his research revealed that young consumers would be willing to endure advertising as long as the brands and products were relevant to them.
Copyright The Financial Times Limited 2006