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For Joe Mohen, a software industry veteran, the lightbulb moment came earlier this year after a brassy intern spoke his mind. Mohen was in a meeting with lawyers and music executives to discuss ideas for a new online music service. "Those all s--k," Mohen remembers his 19-year-old intern interjecting. "Why don't you just give it to us for free?" The conference room fell silent, the executives aghast. But then Mohen thought to himself: The kid is right. Why not give it away?
After all, the dilemma facing any owner of copyrighted works continues to be how to compete with free given that the unauthorized use of online of books, music, and videos is still rampant. But Mohen's plan is to offer music free and still ensure that the record labels get paid. The concept? Sell advertising and offer music companies the bulk of those revenues. To help woo Madison Avenue, Mohen hired Robin Kent, a former chairman of ad giant Universal McCann Worldwide, to be his CEO, and SpiralFrog was born.
SpiralFrog is one of a handful of new services introduced in the past two months that offer music, videos, and, in one case, books for free in exchange for users having to view advertising. For businesses like music and book publishing, which are largely transactional, experimenting with an ad model is fresh territory that could ultimately deliver a new revenue stream and help battle piracy. "Record labels are in desperate need of tools to target their increasingly distracted audiences," says Russ Crupnick, an analyst at consultancy NPD Group Inc. "You have to try different models." Another variation: T-Mobile International (DT
) will offer music videos of EMI artists for its cell-phone customers preceded and followed by 15-second ads. And Warner Music Group (WMG
) is linking up with video site YouTube to provide copyrighted material in exchange for ad revenue.
True, these new ad-dependent services come with risks. Advertising is more susceptible to swings in the economy than subscriptions or straight sales. That could make for even more volatility, especially in music, which has seen plenty since Napster began demolishing bottom lines seven years ago. What's more, forcing users to navigate through a series of ads before getting to the music or novels could try consumers' patience. There's even the potential for backlash, if not among users then among musicians and writers. When Kurt Vonnegut learned that users downloading his novel Slaughterhouse-Five on the new e-book retailer WOWIO will have to flip through ads like one for Verizon Commmunications Inc.'s (VZ
) "Chocolate" mobile phone, the 83-year-old author snapped, "This is just tasteless," and hung up the phone.AD REVENUE?br>
WOWIO's executives insist the ads aren't intrusive. Users can create profiles where they specify interests (food, TV, music), so that PDF-formatted e-books can be embedded with appropriate ads every 30 pages or so. Says William Lidwell, founder of WOWIO, which so far offers 400 titles: "We want to make anything anyone wants to read available for free so that someone who might not have ever read Vonnegut will pick it up now."
SpiralFrog, expected to be up and running by yearend, is still negotiating with music companies and big marketers. The plan is that SpiralFrog would pay the labels enough from ad revenues to compensate for what they would forfeit in per-tune fees, says CEO Kent. So far, EMI Music Publishing and Universal Music Group (U
) have signed on. Consumers will be able to select a track and download it in 90 seconds. In that time, they will watch ads and be directed to other areas of the site. Then the song can be played endlessly (limited to two portable devices), as long as users log on to the SpiralFrog site once a month. Otherwise, songs will expire.
Could these new models finally steer users away from illegal sites for good? "We're trying to strike a balance between protecting our artists," says Adam Grossberg, a spokesman for EMI, "and providing content to our users." In the age of free, never an easy thing. By Paula Lehman