Requiem for a frog: SpiralFrog shuts down

(Credit: SpiralFrog)

Update, 10:38 p.m. PDT: To include more background on factors that led to shutdown.

SpiralFrog, the pioneering ad-supported music service, quietly closed down on Thursday. SpiralFrog's site went dark at about 4 p.m. PDT.

A source close to the company told CNET News that SpiralFrog has ceased operations and assets have been surrendered to creditors. To keep operations going last year, the company issued secured notes in order to borrow at least $9 million from several hedge funds and others.

SpiralFrog representatives weren't immediately available for comment.

New York-based SpiralFrog made a splash in August 2006 by attempting to offer music free of charge to the public while supporting the site through ad sales. Media outlets such as The New York Times, Reuters, and USA Today questioned whether the site might one day challenge Apple's iTunes.

Some argued that SpiralFrog's business model was the answer to illegal file sharing.

But the model has yet to be proven. SpiralFrog is the second ad-supported service to shut down in 2009. Ruckus, which catered to college students, also shuttered operations.

The deaths of these companies come at a time when executives at some of the top labels are questioning whether ad-supported sites boost music sales or cannibalize them.

In SpiralFrog's situation, the company couldn't overcome "a macro-economic perfect storm" says a source close to the company. The sagging global economy, combined with "the collapse of the capital markets" and rapid compression of the ad markets," led to the company's demise, said the source.

That only tells part of the story, however. In truth, the service never caught on with music fans. SpiralFrog's downloads were locked in Digital Rights Management at a time when most of the front-running music services, such as iTunes and Amazon, were freeing songs from copy-protection software, enabling them to play on numerous devices.

In addition, SpiralFrog's music library was always much more limited than iTunes, Imeem, or other competitors. After signing a licensing deal with Universal Music Group, the largest of the four major record companies, in the summer of 2006, nearly two more years would pass before the start-up signed a second top label: EMI.

This meant that SpiralFrog never was able to offer songs from Sony Entertainment Group or Warner Music Group, which account for a large chunk of overall music sales.

The company saw two CEOs come and go, conflicts between managers and founder, Joe Mohen, and perhaps most significantly, the company struggled with debt.

A year ago I wrote that SpiralFrog was borrowing money to fund operations and avoided a debt crisis by renegotiating the loan terms. At the time, SpiralFrog had borrowed more than $9 million, but in March 2008 was given an additional year to repay it.

According to a story published last month in Digital Music News, SpiralFrog's debt was coming due and the story suggested the company may not have the means to repay it.

Here's the obvious question raised by the demise of SpiralFrog and Ruckus; is the ad-supported music sector seeing a shakeout?

[solitare_pax]

In other words, they croaked in this economy.

[MadLyb]

Awwww, don't be such a toadie. <br /> <br />I have actually found this story very ribbeting to follow. <br /> <br />I guess they were just a wart on the industry. <br /> <br />8^)

[ajrogers93]

awww!!! now where am I going to get free music? I downloaded around 300 songs from Spiralfrog, and now it's all going to go away after 30 days. <br />:(

[Sausagebiscuit]

learn from your mistakes. don't buy DRM anymore.

[sanenazok]

You paid nothin' for the music so what's your problem.

[polrky1]

300? I had downloaded over 3,000 songs. I was smart enough to purchase a program that converts protected .wma's to .mp3's so I am able to keep all of the songs I did download.

[genadoll41]

Do you mean that the songs I downloaded will vanish?????

[CleanDen]

http://tunebite.com/en/audio_video_drm_copy_protection/index.html will fix your problem

[Universal_Indie_Records]

I remembering arguing with someone on Coolfer.com that Spiral Frog would last two years top (maybe it was an employee)....<br /><br />I should have bet some money...

[No1Musicman]

Are you done patting yourself on the back yet?

[f0r0ne]

Very surprised they didn't have a content deal with Sony, since Sony devices were clearly the featured advertisers. I'd only recently learned about it, and got some nice stuff. Too bad.

[mmntech]

Does this really surprise anyone. Myself and every techie I know figured it wouldn't last long. People don't like ad backed things. Duh. It's why nobody watches MTV or listens to regular radio anymore. The best route is al la carte services for people who want unlimited music.

[We7Stevep]

The danger is not to lump all ad-funded models in one bucket there were fundamental flaws in their model right from the start It was downloads with DRM only with a limited catalogue and an unfamiliar interface. <br /><br />The last few years has seen a positive compromise reached with streaming and no DRM this is why current models such as We7 have a good chance ti start making it work and even though there are still challenges the fundamentals are starting to come together in a positive way. <br /><br />Steve Purdham <br />CEO - We7<br />http://www.we7.com

[sandonet]

Steve, <br /><br />Greg Sandoval here. Thanks for posting. I have a question: Can you explain how sites like yours can charge high enough CPMs to cover bandwidth costs, penny per-play rates, staff and in many cases, a share of the ad revenue with the labels?

[streamOG]

Steve, <br /> <br />I echo your comments. SpiralFrog's problem was not DRM. Just like it's not iTunes problem either. <br /> <br />One only need look across the table at www.qtrax.com to see how an ad-supported music play should really operate. <br /> <br />Regards, <br /> <br />Christopher Levy <br />CEO- BuyDRM

[Sausagebiscuit]

Really? DRM was the problem for me. Same with iTunes. Amazon made a good chunk of money from me and their DRM free tunes.<br /><br />Sausage Biscuit<br />CEO- BoycottDRM

[streamOG]

Sausagebiscuit, <br /> <br />Well all that music is available free in QTrax with DRM however you can view it as many times as you want on your PC and download it on as many PC's as you have accounts. <br /> <br />I have to predict here that Amazon will exit the music business in a very short while. They are losing money hand over fist and they still have not been able to make a go at selling music to iPod owners sans iTunes. <br /> <br />BTW, that's why Amazon and We7 and others don't use DRM. It's not because the labels said "Hey, don't use DRM" and it's not because the distributors thought it would be revolutionairy and counter-culture. <br /> <br />They are merely dropping DRM to be able to sell through to the iPod. That's it. Every other faux arguement on this subject is just heresay or conjecture.

[jameskatt]

Spiral who?<br /><br />Customers prefer listening to radio or buying their music.

[teedo47]

WRONG. Sorry James. Nobody listens to the radio man. The same 8-12 every hour every time just doesn't cut it. Spiralfrog was awesome. Free is free is free and also legal is their case. I mourn the loss.

[elllroy]

to adress people with little money that like to have things for free as an AD SUPPORTED business sounds like a bad idea. advertisers hate people with little money that like to have everything for free. some kids in kindergarten probably could cook up a better business model.

[robinkent]

When I agreed to become the CEO it was clear to me that for SF to be successful the founder and the majority of his board had to go. Unfortunately for the investors I brought in I wasn't able to accomplish this. If I had who knows what would have happened, for sure we wouldn't have spent (wasted) $34M. The concept was good, but the management, board (not all) and execution were poor. It was obvious to anyone with half a brain it wouldn't survive. Unfortunately some investors bought the sell and sunk far too much money into a lost cause.

[teedo47]

The only problem people are complaining about is that fact that Spiralfrog catered to Windows Media(WMA files) and ipod. Boo friggin HOO. You have an ipod, use iTunes and shutup. I have a sansa so I can use WMA and used Spiralfrog. Like so many others opinions, this was a good service. Ad Supported or not it was damn near perfect for me. The ads weren't distracting or porn related and bright and flashy, annoying type. My complaint was having an album, title, songs, and not download capable. Spiralfrog was good stuff man!!

[tonycecala]

FACT, the future of wireless connectivity is city-wide WiFi...the future of internet radio is Pandora.

[J.G.]

Seems Spiralfrog was already obsolete when it began. Its potential audience, young teens, was too small. Its requirements were onerous: 90 seconds of ads for each downloaded song, songs expire in six months, songs don't play on iPods, etc. Also, the iTunes Store was expanding into all multimedia, thereby attracting people away from music only sites by the time Spiralfrog began.<br /><br />Furthermore, there's no future for any distributor that sells multimedia to be used on computers only at this point. We've been there and done that. It failed.

[aldelorge]

I dug Spiral Frog and downloaded a ******** of files!! I have a memorex mp3 player that plays wav and wma so it worked great. no worries about viruses and the quality of the file. too bad

[thecrafter]

I have used "Spiralfrog " for the past 1 1/2 years, and found it to be a great site and I enjoyed the music . It regularly added new music and U could get great oldies music . It was a site U could download and not be afraid Your computer would get a virus. I agree with all the others who enjoyed the site and will miss it.

[ldr223]

Hi, I'm very sad that Spiralfrog is gone now because I enjoy it very much. I never had no troubles much on downloading the music on my computer or to transfer on my MP3 players at all too. I'm going to miss it and now have to find a free legal site to listen to music like Spiralfrog did. I did try QTrax before I found Spiralfrog like Spiralfrog better than Qtrax too (Spiralfrog was so much easier to figure out than QTrax too). I wish there was a way to get Spiralfrog to come back up and running again.

[chicken1230]

I've only recently discovered SP and was enjoying the free music, especially the old school stuff that is hard to find w/o paying an arm and a leg for. Too bad it's no longer with us...that was a great deal in an economy that has us by the balls!!!

[transparentman]

man I really liked Spiral Frog. It has helped me learn a lot of new music. I could transfer it to my mp3 players and listen to it.