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SpiralFrog dogged by DRM issues, unhappy investors

Some investors of shuttered site are questioning how assets are being sold. At the same time some users are angry about losing their music.

SpiralFrog's traffic over the past year.

Update: To note that SpiralFrog users did not purchase music.

Controversy trailed SpiralFrog while it existed and continues to hound the company, even after closing down.

Some shareholders of SpiralFrog, the ad-supported music download store that shuttered its site on March 19, are unhappy with how the company's assets are being sold. Separately, several site users have complained that they weren't warned they could lose their music if the site closed down.

New York-based SpiralFrog offered free downloads to users who agreed to be served advertisements with their songs. They never purchased the music outright and conditions of use always included watching ads and returning to the site once every 60 days. In August 2006, the company announced that it had acquired the rights to offer Universal Music Group's vast library of songs. SpiralFrog managers proclaimed that ad-supported music would defeat illegal file sharing. The New York Times wrote SpiralFrog could be an iTunes killer.

After that, however, the company suffered through management shakeups and cash crunches, and failed to cut partnerships with two of the four largest music labels. When it finally closed down, SpiralFrog owed at least $34 million.

Some of the people who lost money when SpiralFrog went down have spoken to CNET News about whether some of the company's assets are worth more than they are being sold for. For example,, a mobile content service, acquired SpiralFrog's domain name for $20,000, sources told CNET News.

John Ferber, who co-founded, also started MyMojo. Ferber declined to comment on the price he paid for SpiralFrog's name, but did confirm that the firm handling the sale, Gottbetter & Partners, didn't contact him. Once Ferber, who sold to AOL in 2004 for nearly $500 million, heard about SpiralFrog's collapse, he went to Gottbetter.

So, did Gottbetter advertise the sale of assets or contact SpiralFrog's biggest competitors?

Representatives from such music services as Imeem, RealNetworks' Rhapsody, and Qtrax say they were never contacted about any potential interest in SpiralFrog's assets. Scott Rapfogel, the Gottbetter attorney handling the sale has not replied to numerous interview requests.

One question is why wouldn't the agent in charge of selling SpiralFrog's assets try to drum up interest with a few phone calls to SpiralFrog's competitors or interested reporters?

Switching to the question of SpiralFrog's DRM; some of the site's users are bitter about losing the music they downloaded. When SpiralFrog went dark, CEO Joe Mohen said that SpiralFrog's music would be available for an additional 60 days. What Mohen meant was that if users visited the site on the last day the service operated and updated the DRM on their songs, they would have access for two months from that day.

SpiralFrog's songs required users to visit the site at least once within a 60-day period or the music would be locked down.

"I understand I'm whining and bitching about ostensibly free music," wrote a former SpiralFrog user in an e-mail to CNET News. "However, my point is it was never stated anywhere on their Web site that we would lose the rights to the music if the site went under. Nor was it ever clearly stated about what us listeners had to do to keep the 'rights' to the music."

The question about DRM-restricted music and what happens to it when a company stops doing business has come up often in the past year. Yahoo, Microsoft's MSN, and are three services that stopped issuing DRM keys for their music when they wanted to alter or shut down operations.

In contrast with SpiralFrog, customers of each of the companies would not lose their music totally. They still would be able to hear songs, but would be prevented from moving them to new devices.