Fairly self-explanatory (illustration by findigo)

…The Frog, Spirals

(A Story About SpiralFrog)

I’ve begun writing a series about short-lived music stores and services, which I’m naming “Industry Graveyard”. This is my second entry in the series. The first entry was about “1–800 MUSIC NOW”, which you can read more about here.

Since 2002, companies have attempted to cultivate and monetize music by offering it via streaming and/or limited downloads. The vast majority of services that offer music in this manner operate relatively the same. If you stream music “interactively” (aka how most people associate digital music services like Spotify, etc); you either get served advertisements or pay a monthly fee to access it. If you want to access those songs offline, however, you’ve got to pay a monthly fee to do so (Spotify Premium, Apple Music, etc).

It wasn’t always like this, however. Before Spotify, Apple Music, and Amazon slowly started capturing the public’s attention, other startups tried different methods of offering music to the masses online. One in particular developed an interesting delivery scheme, was completely free, and even had support from a couple major labels and publishers. It also had a shitton of problems. Let’s talk about SpiralFrog.

The service, which launched in September 2007, gave its users the ability to download music from their online catalog for free. You could either listen to the music on your PC, or you could transfer those songs to a compatible portable media player for listening on the go. The real benefit was that since the music was being downloaded, you didn’t need an active internet connection to listen to it. The only cost to consumers was time spent filling out online surveys and watching advertisements served on SpiralFrog’s website. Eight years later, that’s still an incredible deal (in the abstract). Of course, access came with a couple caveats:

● The catalog started with <1 Million tracks, and at its’ height, only offered music from 2 major labels.

● Tracks were encoded with Windows Media Audio DRM — meaning Mac / iPod users were out of luck.

The service was aimed at the oft-prized 13–34 year-old demographic of music consumers. The same consumers for whom SpiralFrog themselves described as “believe(ing) content should be free.” [1].

A screenshot of the old SpiralFrog website

Service Timeline

SpiralFrog was the brainchild of Joe Mohen, a serial entrepreneur who at the time, was best known for launching Proginet & election.com. Both companies were focused on using tech to improve upon different industries (Proginet developed an application that assisted in migrating information over different OS’s, while election.com administered the first legally binding elections online), and he intended on the music service to follow in their footsteps.

Rumblings of SpiralFrog began in late 2006, when Universal Music Group announced that they would be offering their catalog of music on the service [2]. Back in 2006, this was an unprecedented level of access for a platform that ran on advertisements. Universal, now more known for their bearish stance on “freemium” services, had effectively legitimized the ad-supported market in the U.S. before any other major. UMG was soon followed by a bevy of independent labels and distributors, including The Orchard, IODA, and Koch Records (now E1). The company managed to also secure deals with two of the largest music publishers at the time, EMI and Sony/ATV, along with a large number of independents [1] [3].

On September 17, 2007, SpiralFrog launched for users in the U.S., which had followed a soft launch in Canada earlier in April [1]. The U.S. launch garnered a good amount of press coverage from both tech and music websites, which isn’t surprising considering the new model it was touting for music consumption.

Soon, the press began translating into clicks. By the start of 2008, the service announced that they had surpassed 1 Million unique visitors per month, and expected that to grow another 20% by the end of January [4]. That’s about half of the unique’s Napster was receiving in early 2006, around when they launched their own free music tier [5]. Napster, of course, also had the name recognition of a once extremely popular app used to bootleg music.

For an entirely ad-based service, the key wasn’t just getting new visitors to the site, however; it was getting those visitors to become users and view as many advertisements as possible. Their financial situation suggested that wasn’t happening as fast as expected.

In March, SpiralFrog announced that they passed 850,000 subscribers in March, and rose to over 2.3 million unique visitors per month [6]. Around the same time, however, it was also revealed that the company had renegotiated the terms of $7-Million-dollar loan, whose entire balance was due by April 19th [7]. The company had deferred the payment until the following year, leading many to believe that it had dodged a bullet and avoided shutdown. Coverage of the service, which could’ve been termed as skeptical up until this point, was turning more negative about its future viability.

Despite the monetary concerns, the service was concentrated on expanding their offering of music. The catalog size had increased by 25% since launch, bringing the total number of titles offered up to over 1 million [8]. The music being added was coming through new label deals with indies and distributors like IRIS, though they still hadn’t managed to secure any majors other than Universal.

Finally, in June, EMI Music became the second major label to license their catalog for use, drastically expanding the offering of music [9]. Soon, the service boasted a catalog of over 3 million tracks and videos [10], which is comparable to what Amazon Prime Music offers for streaming currently.

The increased selection did nothing to improve the financial straights of the company, however. Growth was slow, and wasn’t encouraging any capital investment. In November, founder (and soon to be interim CEO) Joe Mohen informed employees that the company would not be making payroll [11]. Likely due to the fact that a few months earlier, the company’s primary financier, Stagg Capital had advised them that they would no longer be providing additional funds. The service lasted a number of months afterwards, but inevitably couldn’t catch up to it’s own mounting bills. Finally, on March 19th, 2009, SpiralFrog shutdown after only 18 months of service.

The domain name was eventually purchased by MyMojo.com, which fancied itself as a “free distributor of mobile and online media ”. However, the SpiralFrog that offered free major label music to consumers was dead.

The logo just screams, “Welcome to our website! Malware is now being installed”

What Happened?

If you were to make a large, sweeping generalization for why digital music services fail, you could say that the costs associated with licensing music are prohibitive. You’d have a case too, licensing music is expensive; but so is the overhead associated with all other businesses that provide content as a service. Other on-demand media based services all deal with similar licensing structures (whether it be for royalties and/or large upfront payments), with all of them paying a large percentage of their revenue in order to provide the content for consumption.

As far as SpiralFrog was concerned, leaked internal emails pinned the royalties to music copyright owners at 66% of revenue [12]. If accurate, that places it in the same area as many other music streaming services, with the ~70% of revenue number that often gets thrown around. Like any other music service, in addition to the royalties for music usage, the service also had to provide upfront payments to labels and certain publishers.

A peak at the company’s initial SEC filing illustrates how much in terms of upfront fees the service was also responsible for. Before the company launched in late 2007, they had already accumulated over $7.8 Million dollars in expenses, much of which could be attributed to advances to labels. SpiralFrog owed UMG a reported $3.3 Million before the service launched [7], and was on the hook for several hundred thousand more to other labels & publishers [1].

All of that stated, I think far too much is made of licensing fees for streaming companies. Startup costs haven’t changed much since before SpiralFrog, and they probably won’t change for some time. SpiralFrog definitely wasn’t worse off than a Deezer or a Spotify regarding acquisition costs, and they’ve managed to avoid shutting down after less than 18 months of operation. What really doomed SpiralFrog was a number of disadvantageous positions unique to their business model and management structure; the first of which was their limited selection of music.

Limited Library

Nowadays, a big part of the sell for digital services is their expansive selection of music. SpiralFrog probably didn’t need 15 Million tracks to survive, but their limited selection didn’t give the necessary incentive to their target audience, teens who were likely bootlegging songs. The service launched with only about 800,000 tracks (including music videos) [13] and, for the first half of the services lifetime, it only offered music from one of the four major labels.

Compare the offering to it’s streaming competitors at the time, like Rhapsody and Napster, and their song selection looks rather small. At SpiralFrog’s launch, Rhapsody had already amassed a catalog of over 3.5 million titles, while Napster had over 2 million. Both of them also had their own free (albeit very limited) streaming tiers.

On the digital download side, the iTunes store was offering over 5 million titles by the time SpiralFrog launched, well over five times the selection [14]. And, of course, if you were a bootlegging teen that SpiralFrog valued so much, you had a nearly unlimited selection of music dispersed amongst various BitTorrent trackers, blogs, and Russian mp3 sites. All of these services had another large advantage over SpiralFrog, people were actually aware of their existence.

Customer Acquisition Costs

An August 2009 piece from Cnet on SpiralFrog underlined a number of issues within the company that contributed to its downfall; one of them being the exorbitant amount of money spent on customers lured from advertising [15]. In 2008 alone, the company spent $11 million on marketing expenses, which nearly doubled their costs in licensing music. A large portion of those dollars went to affiliate marketing programs, like AOL’s Platform-A, which while helped lure a very respectable amount of uniques, did not attract a consumer base interested in actually using the site. Leaked emails [12] illustrated that the company was only getting 2.6–2.8 page views per visitor, which, given the amount of navigating necessary to download music, means most visitors weren’t that interested in the service.

The company also spent large sums of money on promotional campaigns that didn’t lure customers. In April 2008, they partnered with Alicia Keys, showcasing a new documentary of hers titled “Alicia in Africa: Journey to the Motherland” exclusively on their website. The film followed Keys on a journey to Africa to visit communities affected by the AIDS crisis [16]. The company expected Alicia’s fans, a fairly fervent base, to equal 4 million new unique visitors for the month in which it was available (4/19–5/19). In reality, they only garnered 3,000 [12]. Alicia’s campaign wasn’t the only letdown, the company experienced similar disappointment with their return on investment from partnerships with the NFL, and the introduction of Club SpiralFrog [15].

For all of the marketing and advertising effort, SpiralFrog never garnered as much attention as the services it was competing with. According to search data from Google Trends, SpiralFrog received the most attention when UMG announced their agreement with the service, which was over a year before they launched in the U.S. When the service actually launched, it was getting a third of the search traffic of popular services like Napster and Rhapsody. As ad-dollars increased, searched interest continued to wane. After 9 months, it was only netting 16% of the search traffic of either competitor. New interest wasn’t being generated from their efforts in advertising. At best, all the money the company was spending was only slowing it’s eventual spiral out of existence.

A Flawed Access Model

The largest issue with SpiralFrog might not have even been their limited library or high advertising costs, but perhaps their incompatibility with Apple’s ecosystem. Not allowing Macs users to download songs wasn’t great, but limiting the service to those who owned portable players that weren’t iPods effectively neutered its greatest selling point: portable free music. At the time of the services’ launch, iPods comprised approximately 76% of the portable player market. The company themselves even pointed out this gaping flaw within their initial SEC filing.

If SpiralFrog did allow consumers to use their music on an iPod, it would’ve completely changed their model. SpiralFrog couldn’t just use the Fairplay DRM, which is the encoding mechanism Apple used to sell protected files on the iTunes store. Other companies had already tried and failed[17] to license the technology, Apple just wasn’t interested in other companies using it. The only other mechanism for allowing downloaded songs to be compatible with an iPod would be to offer them DRM-free. Since SpiralFrog operated on an ad-supported subscription model, this wasn’t an option at all.

Given this, you could certainly present the argument that DRM based download services like SpiralFrog couldn’t have ever succeeded. Unless you can control the entire market like Apple did, the restricted nature of these services don’t offer enough to placate people who pirate music. Offering interactive music for free also has a poor success rate (Spotify and YouTube being notable exceptions). Both Napster and Rhapsody gave up on the limited free access model, and have in fact since merged together, probably not because either company was doing particularly well.

Conclusion

Maybe SpiralFrog was ahead of its’ time. As we’ve seen, a DRM-based access model has only shown success outside of iTunes when it’s accompanied by the ubiquity of mobile phone OS’s and high-speed mobile networks. If the service had launched with licenses from each major in tow, engaged in smart marketing, and allowed portable download usage through mobile phones instead of a Windows DRM, perhaps they would’ve found more ground. Or, maybe they would’ve just been Muve Music, who knows. Either way, I don’t think anyone is clamoring for another digital music service right now.


Works Cited

[1] Mohen, Inc., “AMENDMENT NO. 1 TO FORM 10-SB,” 2007.

[2] J. Biggs, “Universal to try ad driven music downloads through SpiralFrog — still with DRM,” 29 August 2006. [Online]. Available: http://techcrunch.com/2006/08/29/universal-music-group-to-try-ad-driven-music-downloads-through-sprialfrog/. [Accessed 25 October 2015].

[3] SpiralFrog, Inc., “Form 10-QSB,” 2007.

[4] P. Ha, “SpiralFrog Exceeding Our Lack Of Expectations,” 24 January 2008. [Online]. Available: http://techcrunch.com/2008/01/24/spiralfrog-exceeding-our-lack-of-expectations/. [Accessed 15 October 2015].

[5] A. Bruno, “Napster’s New Old Business Model: Free,” Billboard, vol. 118, no. 19, p. 20, 13 May 2006.

[6] SpiralFrog, Inc., “SpiralFrog™ Signs Agreement with Warner/Chappell Music,” 31 March 2008. [Online]. Available: http://www.businesswire.com/news/home/20080331005365/en/SpiralFrog-TM-Signs-Agreement-WarnerChappell-Music. [Accessed 15 October 2015].

[7] G. Sandoval, “SpiralFrog gets loan extension, fortunes still look bleak,” 16 March 2008. [Online]. Available: http://www.cnet.com/news/spiralfrog-gets-loan-extension-fortunes-still-look-bleak/. [Accessed 15 October 2015].

[8] R. Fiscus, “SpiralFrog: A Free Music Service and the Company Behind It,” 25 March 2008. [Online]. Available: http://www.afterdawn.com/guides/archive/spiralfrog-review_of_ad-supported_music_downloads_page_2.cfm. [Accessed 15 October 2015].

[9] A. Veiga, “Spiralfrog offers downloads from EMI artists,” 3 June 2008. [Online]. Available: http://usatoday30.usatoday.com/tech/webguide/music/2008-06-03-spiralfrog-emi-artists_N.htm. [Accessed 18 October 2015].

[10] SpiralFrog, Inc., 31 October 2008. [Online]. Available: https://web.archive.org/web/20081031041916/http://www.spiralfrog.com/. [Accessed 21 October 2015].

[11] G. Sandoval, “How turf wars and miscues crippled SpiralFrog,” 11 August 2009. [Online]. Available: http://www.cnet.com/news/how-turf-wars-and-miscues-crippled-spiralfrog/. [Accessed 15 October 2015].

[12] G. Sandoval, “SpiralFrog’s turmoil, in missives,” 11 August 2009. [Online]. Available: http://www.cnet.com/news/spiralfrogs-turmoil-in-missives/. [Accessed 15 October 2015].

[13] J. M. Germain, “SpiralFrog CIO Jim Campbell: No Need for Piracy,” 28 09 2007. [Online]. Available: http://www.ecommercetimes.com/story/59549.html. [Accessed 05 10 2015].

[14] Apple, “John Lennon Solo Catalog Debuts on iTunes Store,” 14 August 2007. [Online]. Available: https://www.apple.com/pr/library/2007/08/14John-Lennon-Solo-Catalog-Debuts-on-iTunes-Store.html. [Accessed 22 November 2015].

[15] G. Sandoval, “Inside the short, troubled life of a music start-up,” 10 August 2009. [Online]. Available: http://www.cnet.com/news/inside-the-short-troubled-life-of-a-music-start-up/. [Accessed 15 October 2015].

[16] SpiralFrog, Inc., “Alicia Keys’ Documentary “Alicia in Africa: Journey to the Motherland” Available for Exclusive Download on SpiralFrog,” 10 April 2008. [Online]. Available: http://www.prweb.com/releases/Alicia/Keys/prweb847284.htm. [Accessed 28 October 2015].

[17] U. Gasser and J. Palfrey, “DRM-protected Music Interoperability and eInnovation”.


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