Universal to Launch Ad-Supported Free Music Download Site

Firing a potentially powerful salvo in the online music war, Universal Music Group said it would make its entire catalog of music available for free download using an ad-supported approach that could pose one of the most significant threats yet to the dominance of Apple’s iTunes Music Store.

Universal agreed to license its catalog to SpiralFrog, a yet-to-launch site that says it will offer free downloads in the U.S. and Canada, using advertising revenues to defray the cost of essentially giving away music and music videos.

Alternative to P2P Networks

SpiralFrog intends to target young music consumers — especially those between 13 and 34 — who have become accustomed to downloading and sharing pirated music on their computers, offering them a legal and safe alternative to P2P networks.

“Offering young consumers an easy-to-use alternative to pirated music sites will be compelling,” said SpiralFrog CEO Robin Kent. “SpiralFrog will offer those consumers a better experience and environment than they can get from any pirate site.”

The site will use digital rights management technology to ensure that music isn’t further shared without authorization.

“Our target audience is the driving force behind the changes in how music is created, discovered and consumed,” Kent said. “They are the future of music.”

There will be notable limitations on the downloads, including, at least for now, the restriction that downloaded tunes cannot be moved onto portable devices or burned onto CDs.

Advertisers Juiced

The service is slated to launch later this year. SpiralFrog is said to be talking with other labels, but so far Universal, whose catalog includes such artists as The Black Eyed Peas, Bon Jovi, Eminem, Elvis Costello, Sheryl Crowe, Sublime, The Killers and Tom Petty, is the only label signed.

SpiralFrog said it already has some advertisers lined up, eager to reach the young demographic the site will aim for. Fashion clothing maker Perry Ellis has already committed to advertising and Kent, a former advertising executive himself, said Levi’s, Aeropostale and Benetton are among those to 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.

While other music sites have boosted revenues with advertising, and giving away tracks is a tried-and-true marketing technique to drive interest in new sites, SpiralFrog will be the first site to test the totally free approach.

The site is banking on its young users being receptive to the ads because they will be relevant to their lifestyles and reflect the youthful, music-focused culture of the company.

SpiralFrog counts several former music industry executives among its board of directors and its management team includes a former Microsoft executive, as well as those with publishing and e-commerce backgrounds.

Aiming for Apple

SpiralFrog joins a growing number of companies aiming to take market share away from Apple’s iTunes Music Store, by offering compelling reasons for users to choose to download content that is not compatible with the iPod music player.

Over time, most analysts believe subscription services will gain ground and eventually surpass Apple’s per-song pricing scheme, and the number of MP3 players that aren’t iPods continues to grow each year.

Many of the youngest music consumers, particularly in Europe, still flock to illegal download sites rather than legitimate alternatives such as iTunes, JupiterResearch analyst Mark Mulligan said.

“If the music industry can’t stem this tide, then there is a very real risk that these music fans will never develop meaningful paid music consumption habits when they develop stronger spending power in later life,” he added. “If the industry is unable to convert this key demographic, then the current global downturn in music sales would look like a blip compared to the gaping hole that would emerge in 10 years’ or so time.”

Apple’s share of the digital music business is bound to decline, given its early dominance, and whether SpiralFrog succeeds will depend largely on how many users it attracts, Mulligan declared. “Advertisers buy access to audiences. Without a good audience, there won’t be an appealing proposition for advertisers, which means no viable business model.”