[Ecommerce] FT.com: Universal Backs Free Music Rival to iTunes

[Thiru Balasubramaniam]

August 29, 2006


  Universal Backs Free Music Rival to iTunes

By FT.COM

Universal Music, the world's largest music company, has agreed to back a
new venture that will allow consumers to download songs for free and
instead rely on advertising for its revenues.

The new service, known as SpiralFrog, represents a departure from the
99-cent per-song business model made popular by Apple
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iTunes store. It will begin operations in December.

Universal's support reflects music companies' willingness to experiment
as they try to capture some profit from the boom in digital
distribution, which is still dominated by illegal file-sharing networks.

In spite of iTunes' popularity, a report released last month by the
International Federation of Phonographic Industries revealed that there
are still roughly 40 illegal downloads for every legal one as consumers
continue to flock to peer-to-peer networks.

"Offering young consumers an easy-to-use alternative to pirated music
sites will be compelling," said Robin Kent, who is SpiralFrog's chief
executive and the former head of the Universal McCann advertising
agency. "SpiralFrog will offer those consumers a better experience and
environment than they can get from any pirate site."

Customers will be able to download an unlimited number of Universal
songs to their computer and one other device. They will not be able to
transfer those songs onto a compact disc, and they must visit the site
at least once a month to maintain access to their music.

Mr Kent has held discussions with the three other major labels =96 Warner,
EMI and Sony
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m.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=3DSNE>-BMG
=96 and is hoping that they will be lured by the surge in online
advertising. Merrill Lynch
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last week upped its forecast for the sector's growth, predicting that it
would expand by 35 per cent this year in non-US markets to $11.6bn as
companies follow young consumers onto the internet. In the US, growth is
expected to be

Perry Ellis, the fashion company, has said it will advertise on
SpiralFrog, while Levi's, Benetton, Aeropostale
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and others have expressed interest. "Our audience is heavily into music
and can be more easily reached on the web," said Oscar Feldenkreis,
president of Perry Ellis International
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m.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=3DPERY>.

Other music services have also begun to embrace an advertising-supported
model. The new Napster
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m.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=3DNAPS>,
for example, 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.

At the heart of these ventures is the proposition that young consumers
will be willing to endure advertising as the price for their music. Mr
Kent said that his research revealed that they were receptive as long as
the brands and products were relevant to the audience.