SpiralFrog's deal with Warner Music is half-baked

Free-music service gains publishing rights. But without recording rights, it's still a long way from offering Warner's songs. Meanwhile, SpiralFrog reverses course on publicly reporting earnings.

SpiralFrog.com

Updated 6:20 AM PDT to reflect the official announcement from SpiralFrog.

On its face, the signing of a deal with Warner/Chappell Music, the publishing arm of music label Warner Music Group, would appear to be a breakthrough for SpiralFrog.

Warner Music is one of the top four record companies. And SpiralFrog, which last week claimed the position of third-largest music download site on the Web, has toiled for five years to convince the major labels about the soundness of its ad-supported business model. But so far, SpiralFrog has signed a deal for full rights to offer music with just one of them: Universal Music Group.

What's sad about the Warner/Chappell licensing deal, which SpiralFrog announced Monday, is that the troubled music service may be years away from actually featuring music from James Blunt, Green Day, Linkin Park, or any other Warner Music artist. That's because in addition to gaining the music's publishing rights, SpiralFrog must also acquire the recording rights in order to offer the music.

SpiralFrog cut a deal with EMI's publishing unit 18 months ago, for example, but you still won't find any of EMI's songs on the site. No recording rights.

If you're actually looking for substance from SpiralFrog, you're missing the point. What makes this company so fascinating to watch is how it continues to deliver more pretense than substance. The latest example came Friday when Joe Mohen, SpiralFrog's founder and chairman, came to San Francisco and met with me. I was led to believe that we were meeting to discuss the company's upcoming earnings report.
"Shouldn't the only two metrics that matter from SpiralFrog be the number of downloaded free songs, and the amount they have paid the labels? How is the number of free signups a meaningful measure of any success?"
--David Pakman, eMusic CEO

SpiralFrog, which had previously reported earnings, was supposed to report them this week for the quarter that ended December 31. Music fans, journalists, and insiders were finally going to get a peek at how the service, which launched in September, was faring during its first full quarter in business. In 2006, SpiralFrog drew wide press coverage after announcing that it planned to compete with illegal file sharing by giving away ad-supported downloads. The business model was experimental and, at the time, the record labels appeared desperate to find a legal alternative to piracy.

During my meeting with Mohen, no sooner had we sat down then SpiralFrog's public relations people sheepishly told me that the company was filing a Form 15 with the Securities and Exchange Commission later that day. SpiralFrog would no longer be reporting them publicly.

It's important to note that SpiralFrog is not a public company. Its shares do not trade on any exchange. An unusual arrangement with some early investors required the New York-based company to publicly report. Turns out new investors aren't as fussy about public disclosure, and the board decided to do away with the practice. According to Mohen, some of the company's partners also didn't like SpiralFrog revealing details of its business model to the public.

What this means is that Mohen no longer has to reveal his company's progress--or lack thereof--since reporting a dismal third quarter. For the quarter that ended September 30, SpiralFrog posted a loss of $3.4 million on revenue of just $20,400.

SpiralFrog's "silly" claim
So the public doesn't get any insight into SpiralFrog's business model. What the company offered instead were highly questionable claims. Last week, SpiralFrog announced that it had topped 850,000 registered users, making it the third-largest music download site on the Web behind iTunes and RealNetworks' Rhapsody music service.

"What about Amazon and eMusic?" I asked Mohen.

"We have more registered users than eMusic," he responded. He added that Amazon doesn't count because it's a store. SpiralFrog is an ad-supported service where consumers don't buy anything. I didn't bother pointing out that iTunes is also a store. It was obvious SpiralFrog's carefully tailored triumph could come apart all too easily.

"This claim is silly," David Pakman, eMusic's CEO, said in an e-mail to CNET News.com. "(SpiralFrog is) a free ad-supported service, right? It costs nothing to sign up, right? You simply put in a username and password, no credit card required, right? And they only have 850,000 signups? We have well more than 400,000 paying subscribers. Those are people who have enrolled in a pay service with a valid credit card and are being billed. Those people have paid for and downloaded almost 200 million songs."

Pakman continued: "Shouldn't the only two metrics that matter from SpiralFrog be the number of downloaded free songs, and the amount they have paid the labels? How is the number of free sign-ups a meaningful measure of any success?"

A check of Alexa.com, which measures Web traffic, shows eMusic far outpacing SpiralFrog in rank, reach, and pageviews.

As for Pakman's question about what the important metrics are for judging SpiralFrog's success, it doesn't matter. The company isn't talking about them...anymore.

SpiralFrog trails eMusic and Rhapsody in page views, according to this comparison on Alexa.com Alexa.com

 

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