New free music sites, FreeAllMusic and Guvera, try to avoid path of failed predecessors

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New free music sites learn from others’ mistakes

LOS ANGELES — Two new companies are giving consumers a way to download songs for free by watching a few ads. The idea has been tried before but this time it appears it might work, because the startups have found advertisers that are willing to pay around $2 to have a moment of your time.

That means recording companies can get about as much compensation from the free services as they receive from a download on iTunes that costs the consumer $1.29.

“You pay for the song by paying attention to the advertiser,” said Richard Nailling, CEO of FreeAllMusic.com, which launched an invitation-only test of its service in December. “It’s a fair trade of attention for music.”

Both Free All Music and another new free site, Guvera.com, have licensing deals with independent labels and two of the largest recording companies, Universal Music Group and EMI Group PLC. Fans of U2, Black Eyed Peas and Norah Jones should be happy. But admirers of Ke$ha or Sade, both with Sony Music labels, will be out of luck for now.

The new services come after years of falling CD sales. More people are consuming music online but spending far less for it.

In response, recording companies have been licensing songs to an array of Internet businesses that offer songs cheaply or for free — in the hope that these legitimate alternatives can keep people from turning to illegal downloads.

But some sites that allowed free listening on computers couldn’t generate enough advertising revenue to cover their debts or pay royalties that were required every time someone played a song. One such site, imeem, was on the verge of collapse before it was bought last year by MySpace Music.

The new services have tried to come up with unique advertising packages so companies are willing to pay more. And they are putting the money toward offering downloads of songs that can be put on portable devices.

They also have made changes to deal with a problem that helped cause another free-download site, SpiralFrog, to croak last year. SpiralFrog irked users because its songs expired if people failed to log back on every few months to view more ads. Its songs also couldn’t be played on iPods or iPhones.

Free All Music and Guvera let users play songs on any device. The users also don’t have to deal with copy protection software that requires checking back in with the service. So-called digital rights management software is on the way out after Apple Inc. ditched the copy-protection technology in iTunes last April.

Free All Music and Guvera are privately funded and in a beta testing phase with just a few thousand users. Wannabe joiners must register and then clear a waiting list before getting invited. That lets the sites make sure there are enough advertisers to pay for the songs that will be downloaded.

The 46 advertisers that have signed up for Guvera’s test in Australia are paying on average $4 per visitor, contributing $250,000 so far. As the service expands to the U.S. at the end of March, Guvera plans to add users in tandem with more advertisers.

“Everything’s about a controlled, sort of old-school business model of: Build one product, find one customer, sell it. Then build two products, find two customers, and sell it,” said Guvera’s founder and CEO, Claes Loberg.

“If we have enough to support a million people, that’s all we’ll open the door to, even if we have 5 million sitting in the background waiting to get in.”

Song royalties are paid per download, in the range of 70 percent of the retail price of a song. So advertising revenue should be able to cover what the track would have made if it were sold for $1.29 on iTunes.

“We are very satisfied with the business terms we’ve come to with both those companies,” said David Ring, executive vice president of business development and business affairs for Universal Music Group’s eLabs unit. “As long as there’s fair compensation … we ought to empower anybody with a good idea and a dynamic new service.”

Free All Music is the easier to navigate of the two.

Users can type in search terms to find a song, or can pick one from a list of top hits by genre.

They then pick from a range of advertisers, including Coca-Cola Co. and Zappos.com, the shoe and apparel retailer now owned by Amazon.com Inc. Users watch one video ad featuring that brand. One click later, and the song downloads to the user’s computer and can be transferred to a portable device. Users can download a maximum of five songs a week; the cap is reset every Tuesday.

Advertisers on Free All Music pay about $2 per song for the right to present users with one video ad. That’s much higher than general ad rates online because the users have indicated they are inclined to hear from the company. Users must click again to start the download, and they’re reminded who is providing the song.

Boston-based advertising agency Mullen, which is testing the Zappos ads on Free All Music, hopes the goodwill generated by paying for the music will carry over to the brand.

“We’re giving them something they want,” said a media planner at Mullen, Brenna Hanly. “Us giving that song can spark them to talk about it on Facebook and Twitter.”