SpiralFrog Goes Belly Up

Music startups sure don’t seem to have it easy these days. Lawsuit after lawsuit is raining down on some of them, and legal threats, fierce competition but evidently also the economic downturn and the decline in digital advertising spending is forcing some companies to shut down altogether. The latest company to suffer that fate is venture capital-backed SpiralFrog, which quietly hit the deadpool yesterday after 5 years of existence.

A source told CNET the service went under at about 4 p.m. PDT, and has been down ever since. The publication has been unable to reach anyone at SpiralFrog for comment, as have we, but claims the source said the startup issued secured notes in order to borrow at least $9 million from hedge funds and others last year to stay in business. Alas, it seems like all efforts to keep the company afloat have been in vain, causing another ad-supported free music download service to cease operations (recently a similar music service geared towards college students, Ruckus, pulled the plug).

Having raised as much as $12 million in VC and debt funding, the company made a splash in August 2006 (after 2 years in operations) when Universal Music made their entire music catalog available for free download through SpiralFrog, joined by EMI a month after. About a year after, SpiralFrog started handing out private beta invitations (what took them so long?), but we were already critical of the ad-supported digital DRM-tied music download strategy then:

“I don’t know if SpiralFrog will be able to sustain their business off of on-site advertising and affiliate music sales.”

We covered the company again in January 2008 when SpiralFrog seemed to be doing fine, but the scene was changing and the company had to fend off a lot of competitors, including HypeMachine, RadioBlogClub, Deezer, InTune.fm, Mog, Last.fm, Imeem, etc. It didn’t catch on enough with music fans, sinking the startup in a sea of debt obligations, which it was unable to repay in time.

We’d like to relay the question CNET asks at the end of the source article: is the ad-supported music business facing a shake-out?