Industry will use ads to generate revenue while bringing hardcore illegal downloaders back into the fold.

August 29, 2006

After years of heavy-handed litigation, the music industry may have found a way to bring hardcore, illegal music downloaders back into the fold with an announcement from Universal Music Group and SpiralFrog that they will make UMG’s catalog available for free.

The catch is that the target audience, males and females ages 13 to 34, will have to sit through something they perhaps hate as much as paying for music: advertising.

The strategy has been adopted by music services such as Napster and Yahoo, but the jury is still out on whether the music services can deliver the right audience or the numbers of eyeballs, or in this case ears, marketers need.

There is also some question of whether the magic of ad revenue will extend to the digital music market, or whether SpiralFrog has a long-term plan.

“At first sight, SpiralFrog does not appear to have any plans to upsell a premium service to the end-user,” said Michele Mackenzie, an analyst with Ovum. “In our view the key value of the advertising model lies in using it to transition users to paid-for services. This may be introduced later.”

If it works, however, it will be one of the more brilliant maneuvers pulled off by a combination of the digital music industry and the advertising community. Whereas music traditionally has been used to enhance advertising, this deal will employ music as a kind of bait for marketers.

The U.S. music industry has taken a series of PR body blows for its ongoing prosecution of soccer moms, bus drivers, and children for illegally downloading music.

The industry could use ad-supported music downloads as a way to finally put a leash on the massively unpopular Recording Industry Association of America, which handles its litigation, and turn “free” music and videos into a revenue-generating business.

Marketers’ Dream

For the marketing community, this could be a way to reach a community that has practically abandoned traditional TV and radio and spends most of its time online, where it remains elusive. That has produced a blind spot for marketers who find the demographic intriguing.

UMG, the largest music company in the world, will offer its catalog of music and videos for downloading at no cost in the United States and Canada through SpiralFrog, a New York City-based digital downloading service that combines advertising and access to entertainment.

The two companies did not reveal their revenue-sharing arrangement, but they see this as a very attractive option for hardcore downloaders that takes them out of the industry’s legal line of fire.

“Offering young consumers an easy-to-use alternative to pirated music sites will be compelling,” said SpiralFrog CEO Robin Kent. “SpiralFrog will offer those consumers a better experience and environment than they can get from any pirate site.”

Ad Insertion Unclear

The music industry and SpiralFrog will integrate digital rights management technology into their downloads, in effect controlling illegal sharing of the downloaded music and videos.

It was unclear how the ads would be integrated into the downloading process. Many marketers are convinced that “pre-roll” ads, self-contained commercials that run before or perhaps during the downloading process, are ineffective, particularly when targeted to younger people.

Perhaps they will find some creative way to integrate shorter commercials delivered by UMG’s artists, or perhaps they will use products strategically placed in behind-the-scenes or concert footage that run during the downloading process.

The deal could be a coup for UMG, home to Kanye West, Primus, and the Pussycat Dolls. UMG, along with Warner Music Group, has been casting about for digital music options outside of iTunes over which they have more business and strategic control.