Free All Media Raises Nearly $1 Million For Ad-Supported Digital Music Downloads

Free All Music is a new digital music startup that plans to make money by getting people to watch ads in exchange for track downloads. If it sounds familiar, that’s because it’s the business model that startups like SpiralFrog tried and failed at — all while blowing through tens of millions of dollars. But Free All Media managed to get some investors to buy in to its business model; the startup has raised a seed round of funding that an SEC filing shows was worth at least $990,000.

CEO Richard Nailing said he and co-founder Brian McCourt invested nearly $1.5 million of their own money since the Atlanta-based startup was founded in mid-2008, but wouldn’t comment on the amount of this new round, which was led by private investors. The team thinks its music site will succeed because it’s monetized on a cost-per-action (CPA) vs. cost-per-impression (CPM) basis; users have to watch a 15-second online video ad for every DRM-free track they want to download. Nice premise — but there are a few reasons why the site has a steep uphill battle.

Interaction vs. Scale: Any site that wants to attract advertisers needs to prove it can build a large user base first, but Nailing’s sales pitch was about user interaction vs. scale. Free All Media will charge advertisers on a cost-per-download basis and users get to pick which ads they watch. AdPerk, a startup launched in 2007, tried the same model, but gave ad viewers mini-subscriptions to various magazines instead of music. (It seemingly hasn’t gained much traction since then).

Some display: Free All Media will also promote the site through search and social media ads, and Nailing said the company will supplement brands’ CPA buys with impressions. After a user downloads a track, the company will promote that download in a banner ad somewhere else on the web.

Privacy: But that sounds like Beacon, the ad platform Facebook tried and got lambasted by users for. To avoid a backlash, Nailing said users need to give the site permission to publicize their downloads when they first sign up. “You agree that you’ll be cookied, we can store your preferences and that we can use your registered user name in the banners,” he said. “It’s part of the fair trade.”

Licensing : Nailing said the company had just closed its first deal with a “major” label, and was in late-stage negotiations with “three others;” some of the funding was used for up-front payments for the licensing deals. This is one of the biggest hurdles that a music startup has to face — cutting licensing deals that don’t wind up bleeding it dry. Free All Media seems to have come up with a patchwork of solutions that it hopes will be able to solve the problems that have plagued other digital music startups.