New York-based SpiralFrog, an advertising supported music service website went down on Thursday afternoon without any fanfare, with sources in a Friday CNET report saying the company has ceased operations and its assets were handed over to creditors. The company was in financial trouble last year, having issued secured notes in order to borrow a minimum of $9 million from hedge funds and other sources. The site's business strategy revolved around offering free digital music downloads to the public and charging companies to advertise on its site.

Launched in August of 2006, the innovative model had some critics saying it would challenge iTunes and was the solution to illegal file sharing. Others wondered if services such as SpiralFrog's helped increase music sales or took away from them.

One unnamed source believes SpiralFrog's demise was a result of the weak economy, as ad budgets rapidly shrunk. The larger problem, however, was the kind of service SpiralFrog provided, as the files it offered were DRM-protected, allowing them to play only on users' computers and nowhere else, while paid services such as Amazon and iTunes were letting users copy them onto their portable media players and other devices. SpiralFrog also offered less choice, as it launched with Universal Music Group's library and took almost two more years to add EMI artists.

In addition to the debt problems, which were due to be repaid last year but renegotiated to this year, saw SpiralFrog move through two CEOs as well as face a conflict between managers and founder Joe Mohen.