The Death of SpiralFrog (but not Ad-Supported Music)

So our former client SpiralFrog has finally succumbed, and music industry pundits and reporters are taking the news as a flier for the death of ad-supported music.

This is a mistake.

SpiralFrog had its share of problems, as we well knew when we took on the business in the summer of 2007.  By then, the company had gone through a wrenching management change, a missed launch date and a turnover in investors.  The service itself set out to legitimize music downloading by attracting enough users (the benchmark was 10 million) that SpiralFrog could charge high enough CPMs to brand advertisers that the music would pay for itself.

Keep in mind that SpiralFrog got more than halfway to its goal, at one point garnering 6 million monthly uniques, and was building a nice grassroots following.  It simply ran out of runway.  Based on the feedback we received from journalists and analysts, as well as my own observations, here are the top three reasons SpiralFrog didn’t take off faster as a service:

• It didn’t work with iTunes.  Forget the iPod for a moment.  iTunes has proven to be the de facto media UI for just about all of us, whether we get our music from Apple, eMusic, Amazon or wherever.  Even if you’re downloading your music via Limewire or other P2P networks, you’re still using iTunes.
• It had only two of the four major labels.  The Frog was never able to capture the Warner and Sony catalogs.  If you search a couple of times for music you want and don’t find anything, you’re probably not going to be inclined to come back.  Blame that on the labels who are still refusing to do reasonable licensing deals.
• Search and discovery was frustrating.  SpiralFrog had a nice home page and kept the flow of new music coming, but even I found the search function frustrating.  To be fair, SpiralFrog never was able to add the features — concert listings, merchandise sales — that founder Joe Mohen envisioned for it.

One thing that SpiralFrog did NOT set out to do was be an “iTunes killer,” another favorite media trope.  Joe and his team understood that the service’s incompatibility with the iPod somewhat limited its audience.  But there are lots of folks out there without an iPod, and millions of kids whose primary listening device is the PC — just a fraction of those users would have been enough to propel the Frog. It was a compelling and well thought out business plan.

SpiralFrog did excel at one very critical element of digital music.  The company built a very sophisticated back-end system that matched the holders of the recorded music rights with those who hold the publishing rights.  A lot of folks don’t understand this is a critical distinction in building an online music service.  Publishing rights are notoriously hard to source and manage because there can be many people who own the rights to a single song.  The fact that the Frog figured this out and built a sophisticated system to keep both sets of rights holders happy is one of its most valuable legacies, and sooner or later, someone will figure out what huge value there is in this system and bid for it.

Is there a market for ad-supported downloading of premium content, especially music? When you remember that a vast majority of Internet traffic — more than Google’s total traffic — is devoted to file-sharing, I think the answer is a qualified yes.  Someone’s going to do it.  It’s just a matter of when.