SpiralFrog and Universal Music, the largest music firm in the world, have inked a deal that will empower users to download music for free. As their part in the deal, Universal Music has made its entire catalog available to the service for the North American market.
With Apple iTunes representing the existing model with their 99 cents-a-song model, this looks like it may be the first real competitor that offers a different choice to consumer. MTV recently offered a service called Urge, which gives the option of a subscription service, but that doesn't seem to be doing much at this time.
The 80 percent market share that Apple iTunes enjoys offers a lot of room for competitors to chip away at. It will be interesting to see if consumers adopt another model in a big way.
As far as the Universal/SpiralFrog deal, they are going to use an advertising model for their source of revenue. Research does show that consumers are willing to put up with some marketing interference if it relates to their interests. The key is to make in as non-intrusive as possible while being relevant to the target audience; which in this case are consumers between the ages of 13 to 34.
To make this even have a chance though, SpiralFrog will have to land deals with other labels such as Warner, EMI and Sony-BMG. Assuming that is accomplished, then the question of success will depend upon whether users feel it's worth saving 99 cents a song to watch commercials. If the commercials are done in a way that offers a unique experience for the consumers, it may have a chance to be very successful.
"The challenge is going to be whether there's enough advertising revenue to drive sales volume," said Mike McGuire an analyst at Gartner Research. "And as we know in online music, if you don't have all four of the majors plus a significant number of independents then you don't have a thriving store."
The Financial Times reported that last week Merrill Lynch had raised its forcast for growth in the sector, projecting that it would increase by around 35 percent this year in the international markets to $11.6 billion. Growth in the U.S. will be strong as well, with expectations of growth predicted to be near 30 percent to $16 billion.
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