January 24, 2007 3:12 PM PST

Is music site SpiralFrog spinning out?

Shortly after Christmas, music start-up SpiralFrog appeared to be spiraling out of control.

Few at the digital music company were exactly sure who was in charge following the December 26 firing of SpiralFrog CEO Robin Kent, said former employees. Kent's ouster created a chasm in the company's leadership, the former employees said, and soon after, 5 of SpiralFrog's 10 board directors and 5 company managers exited.

Just four months before, SpiralFrog was a media darling. The company promised it would launch a Web site that provided free music by the end of 2006, covering the cost of those tunes through advertising sales. Media pundits loved the idea. The New York Times dubbed the company an iTunes challenger, despite the fact that the site hadn't even launched yet. The Guardian, a London newspaper, said Apple "took a knock" with SpiralFrog's emergence.

Now, former executives and industry insiders describe a company reeling from a management shakeup, a missed launch date and a lukewarm reception by the major music labels to a business that supports free tunes by selling advertisements.

"The situation at SpiralFrog will certainly give ammunition to those who really never believed in the idea of ad-supported music," said Gartner analyst Mike McGuire.

News of trouble at SpiralFrog comes as others are attempting to build music services that offer legal alternatives to piracy. Ruckus announced on Monday that it will soon make music from all four of the top music labels available free of charge to college students. Brilliant Technologies' Qtrax and Mashboxx, legal peer-to-peer sites that charge for songs, are preparing to launch in coming months.

SpiralFrog's troubles are not endemic to the entire sector, argued Ken Parks, chief operating officer of Brilliant Technologies, Qtrax's parent company.

Maybe so, but they hardly help.

Launched four years ago, SpiralFrog was gunning for illegal download sites. Leaders of the company believed that if they offered music free of charge and free of legal hassles, consumers would have no need for illegal file-sharing sites.

Doubters from the start
From the beginning, there were doubters. The most glaring problem, at least to critics, was that the company had signed only one of the of four top music labels: Universal Music Group. The other was that SpiralFrog said customers would have to wait 90 seconds for each song to download. Company managers denied this was to ensure that people looked at the ads, but skeptics asked what other reason could there be.

A rift developed in recent months between SpiralFrog's management and members of its board. SpiralFrog's infighting got so bad, said two former executives, that some of those remaining on the executive staff still loyal to Kent stopped showing up to the company's lower Manhattan office. New management, headed by SpiralFrog's founder, Joe Mohen, countered by issuing letters notifying the absent executives that the company understood this to mean they had resigned.

"Nobody had any confidence in the leadership after Robin left," said one former SpiralFrog manager. Kent declined to be interviewed for this story.

Mohen said in a phone interview Wednesday that the company needed a change of management to "take the company to the next level" and that many of the departed executives and board members have been replaced. "SpiralFrog's launch is imminent," Mohen said.

Critics have regularly harped on what they see as obvious shortcomings: SpiralFrog's service doesn't offer as many choices as Apple's iTunes, or even as music pirates.

Music sold on SpiralFrog would be locked into a digital rights management (DRM) software, for example, that prevented it from being listened to on anything but a PC and two mobile devices. Songs downloaded from the site would not be compatible with iPods or Microsoft's Zune and they also couldn't be burned to a disc. SpiralFrog users must update their music at the site once a month or lose access to their music libraries.

Apple's music is also wrapped in DRM, but it obviously is meant for iPods, which account for more than 80 percent of the digital music player market. Illegal downloads are not copyright- protected and the music can be burned, widely shared and played on an iPod.

Some in the music industry were skeptical that SpiralFrog's "user experience," with the long download delays and restrictions, would draw large audiences. "They didn't think people would want to wait a minute for every song," said one music executive.

SpiralFrog isn't alone in facing these problems. Some of the offers from rivals are similarly restricted. For instance, Ruckus' gives music, which is also DRM-protected, to college students for free but only until they graduate. After that they have to pay a subscription fee of nearly $9 a month or wave goodbye to their libraries.

Parks said he believes that as more and more unauthorized sites are shut down and the music industry continues to take people to court, the public will gravitate to venues that offer a good deal without the risk of legal hassles.

"The risk of liability is a meaningful risk that goes beyond the law," said Parks of New York-based Qtrax. "People run the risk of spyware or viruses on some of these sites. Many are finding out that it's just not worth it."

Before the management blowout, some big companies were buying into SpiralFrog's business concept, according to former SpiralFrog executives. "The sad thing about the whole thing is that we were getting somewhere," said the former manager. "We were looking at commitments from some major advertisers. We were well on our way to signing one other label and would have convinced the others once we generated an audience."

Mohen, SpiralFrog's founder, said he has added former WB Network chief Jordan Levin to the board of directors, and believes the ad-supported music market is packed with potential.

"SpiralFrog isn't just a Web site," Mohen said. "We're a new medium."

See more CNET content tagged:
SpiralFrog, leadership, management, manager, Apple iTunes

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