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SpiralFrog faces management crisis, unclear future

Once a standard-bearer among ad-supported music services, the company's management may lose control of the company, sources tell CNET News.

SpiralFrog's management may be forced to turn control of the company over to investors, say sources. SpiralFrog

SpiralFrog, a pioneer in offering ad-supported music downloads, is at a crossroads as management is in danger of losing control of the company.

According to multiple sources, including current and former employees, the company's founder and chairman, Joe Mohen, has told associates and friends that he may be forced to hand the company over to investors. The sources also said that Mohen has said a shutdown of the Web site could occur as early as next week. Mohen told CNET News he was unable to comment, citing poor cell phone coverage at his location.

New York-based SpiralFrog made a splash in August 2006 by attempting to give away music that would be paid for through advertising. A licensing deal with Universal Music Group, the largest of the top four music companies, immediately gave the site credibility. Media outlets such as The New York Times, Reuters, and USA Today speculated about whether SpiralFrog's business model was the answer to the music industry's problems.

One person close to Mohen said that even if a management change did occur, SpiralFrog could continue to exist depending on what investors decided to do. One of the largest investors is Connecticut-based 3V, according to the sources. Representatives of the company were not immediately available for comment.

What led to the most recent turmoil at SpiralFrog is still unclear. The company has long been plagued by management turnover, a lack of confidence in the company's business model by top music labels, and a lack of interest from music fans.

SpiralFrog has also wrestled with debt. In a September 2007 story, CNET News wrote that SpiralFrog had burned through most of its available cash--having spent more than $4 million before even launching the site. Mohen began funding operations by borrowing money, according to public documents.

The company's debt load came up again this year when Digital Music News reported that SpiralFrog was "running out of cash" and that "barring a serious event, Spiralfrog will have to wind it down."