Now the labels are starting to agree that free might work for them,
too. Universal Music Group's announcement Tuesday that it is licensing
its digital catalog to a Web site offering free, legal downloads marks
a significant shift in an industry long criticized for fighting, rather
than harnessing, the Internet's potential.
The Web site, backed
by New York company SpiralFrog, hopes to make money selling
advertisements that play while songs download. In addition to
Universal's artists, which include U2 and Kanye West, SpiralFrog is
seeking to license the catalogs of Sony BMG Music Entertainment, Warner
Music Group and EMI Group.
"This is really promising that the
labels are going to finally stop kvetching and start thinking
intelligently about where their money's going to come from in the 21st
century," said Aram Sinnreich, managing partner of Radar Research.
"SpiralFrog is one small step for the record labels, one great leap for
music kind."
The deal between SpiralFrog and Universal Music,
the world's largest record seller, reflects how the entertainment
industry is scrambling to find new ways to make money as the Internet
rewrites the rules of distribution and marketing.
"If someone
wants to buy a million CDs from us and then give them away on a street
corner, that's fine with us as long as we get paid," said Larry
Kenswil, a top digital-media executive at Universal Music.
The
record company will receive an upfront payment from SpiralFrog and a
portion of the company's advertising revenue. "Anything that encourages
people to get music from legitimate sources is a good thing."
But SpiralFrog's success is far from guaranteed.
Record labels have spent much of the seven years since the debut of
Napster trying to convince music fans not to download free songs from
online file-sharing networks. They've fought the networks in court and
sued thousands of individual users for copyright infringement.
And, at least for the foreseeable future, online ad revenues are
unlikely to replace the US$33 billion spent worldwide last year on
recorded music. Even with the success of outlets such as Apple Computer
Inc.'s iTunes Music Store, labels still make most of their money
selling compact discs -- although those sales have been declining for
years.
"There's a real risk that, over time, consumers will
eventually lose their willingness to pay for music at all," said
entertainment analyst Mike McGuire of research firm Gartner. "You have
to drive a lot of ads to a lot of eyeballs to make as much money as
iTunes earns by selling songs for 99 cents each."
Finally,
there's the question that cuts to the core of SpiralFrog's business
model: Will fans sit through a 90-second ad to get free music?
Despite the conventional wisdom that young people don't want to be
bombarded with marketing messages online, advertisements are some of
the most popular video clips bouncing around the Internet. Teen-agers
routinely sign up to receive promotions and e-mails from their favorite
brands.
"The currency we're using is time," said SpiralFrog
chairman Joe Mohen. "Young people are already downloading free songs
illegally on peer-to-peer networks. We believe that advertisers will
pay to show those consumers ads, and that those payments will rival
what music companies get from iTunes or other online retailers."
SpiralFrog's site is expected to debut later this year. When it does,
users will be able to save downloaded tunes to a hard drive or a
portable music player. They won't be allowed to burn songs to a CD.
Users also will have to visit the SpiralFrog Web site once a month to
watch more ads. Otherwise, digital locks on the music will make it
inaccessible.
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