Digital Home Thoughts: SpiralFrog Death Shows Cost of Free Music

"Ad-supported music sites have been around for two years, and some have burned through lots of cash, but none has reported a profit. According to a letter sent to investors by SpiralFrog's attorneys last week, the company owed $34 million when it ceased operations on March 13. Then there's the crumbling ad market. Even before ad money began drying up, questions lingered about whether ad-supported sites could generate high-enough ad rates to pay their costs, which include the hefty fees they pay to license music. Now, against this bleak landscape, comes a new threat."

The demise of SpiraFrog has raised the question, again, of whether or not ad-supported music streaming is a viable business. While bandwidth, storage and servers have been getting cheaper, making the technical costs of operating a music streaming site extremely low, the legal costs for licensing the music seem to be mounting. CNET examines the challenges the remaining sites face. A source states that labels are interested in a successful business model with the likes of Pandora and YouTube, but the largest problem stems from the fundamental difference that traditional media outlets like TV and radio have from streaming radio stations. Unlike TV and radio, where you listen to whatever they choose to play, making those channels more like a promotional outlet, streaming stations tend to give you the ability to choose what you listen to, making them much more like a personal music library. With a personal music library of tens or hundreds of thousands of songs, why buy music? Labels want to find a way to recoup those lost sales through licensing and so far, a balance between cost and personal freedom hasn't been reached. Until them, subscription seems the best option. How much would you be willing to pay for a personal streaming radio station?