New York-based SpiralFrog, which plans to launch its service later this year, said that the world's largest music label had agreed to make its library available to US and Canadian customers of the service.
The site appeared to be the first to offer free, legal music downloads to customers willing to watch online ads.
The inclusion of the biggest of the Big Four global music labels could give SpiralFrog an edge with consumers by adding a roster of star acts such as U2, Eminem, and The Killers.
The move has the potential to shake up an online music sector that is dominated by Apple Computer's iTunes Music Store, whose marketing of $0.99 song downloads has become the standard market model.
"This concept holds a lot of promise," said Phil Leigh, a senior analyst at the research firm Inside Digital Media. "Youthful consumers are moving to the Internet, so the way to popularize music is on the Internet, and you have to be able to make it available for free."
Leigh said that the market has the potential to generate revenues in the same manner as radio.
"The US radio industry generates $20 billion a year in revenue and they give the product away for free," he said. "Record labels generate $12 billion a year and they sell their product."
SpiralFrog boss Robin Kent, a former advertising executive, said that the service will offer an alternative to the pay-per-song model as well as the widely used practice of illicit file-swapping.
"Offering young consumers an easy-to-use alternative to pirated music sites will be compelling," said Kent.
Kent said that the website will offer high-quality legal downloads with protection against viruses and spyware. It will have built-in digital rights management technology to prevent illegal copies of the downloaded songs.
A Universal spokesman who asked not to be named said that the new service is among several online ventures being supported by the music giant.
"We support any model that will help offer digital music to consumers in an exciting and legitimate way," the spokesman said.
A spokesman for EMI said that the British-based music giant is "open to any kind of model that is consumer friendly and creates another way to download digital music."
An industry source said that EMI was in negotiations with SpiralFrog and other groups that may be launching ad-supported music Websites.
Although surveys show that many consumers still use file-sharing sites to swap pirated music, the market for legal online music has soared with the advent of iTunes and others, and with the crackdown in the United States and other countries on piracy.
Apple's iTunes holds more than 80 percent of the US market for music downloads, and is also strong in other countries. Apple's iPod - which is the only player compatible with iTunes music - holds about 75 percent of the US market for music players.
Jupiter Research analyst Mark Mulligan said that the move to an ad-supported model was "innovative but not entirely new."
"It is part of a broader development of the music industry becoming more experimental and broad-minded with digital music," he said. "Developing ad-supported free music services is actually something we have been telling the music industry they should do for some time now."
But the success of SpiralFrog will hinge on whether the site can get the right content and grow a sizable audience, Mulligan said.
"Without a good audience there won't be an appealing proposition for advertisers, which means no viable business model."
© 2006 Agence France-Presse
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