First, let’s congratulate the traditional music-on-wax industry for trying something new in digital music — outside of suing its customers. The largest of the music companies, Universal Music Group, announced it would offer free music downloads through a startup called SpiralFrog supported by advertising. The other big music companies are negotiating with SpiralFrog, too. Clap, clap, clap.

But before you hurt your hands with all that applause, you might want to look at the fine print of this deal. According to the New York Times and bloggers covering the story, there are some “gotchas” with the free SpiralFrog service, due to launch in December:

+ You must listen to a 90-second audio commercial for every tune you download.

+ Your music will be in the protected WMA format, not playable on iPods.

+ You will not be able to burn a CD with the music, but can listen to songs on a limited number of computers or MP3 players.

+ You will have to return to the SpiralFrog site to view ads each month or your downloaded songs will expire.

There have been music services such as Napster and Rhapsody that offer free unlimited listening for monthly subscription fees. And now Napster is offering some free streaming music with advertising. The Times reports that peer-to-peer music site Kazaa will relaunch with a similar business model to SpiralFrog’s — free music supported by ads.

But with all those restrictions listed above, who will bother to listen and watch so many ads just for a song on their MP3 player? That remains to be seen. The announcement of the Universal/SpiralFrog deal set off a media frenzy, and numerous TV reports probably oversimplified the situation: Get free music just for watching an ad!

Bloggers were less impressed. Ted Samson at InfoWorld Tech Watch wrote that “There are right ways to use ad revenue to provide free goods and services, and there are wrong ways.” He thinks people won’t want to go through the hassle at SpiralFrog for free music when there’s already so much cheap or free music at MySpace band pages or Napster or Yahoo Music.

At the Digital Music Weblog, Grant Robertson wonders if musicians will get royalty payments on this free music. One commenter on that blog ran down the reasons that SpiralFrog would go out of business in a year:

Problem #1: There’s no way in hell I want to listen to a minute and a half advertisement before listening to my music. The trend with TiVo, satellite radio, and others is that people want to SKIP THE COMMERCIALS! Free or not!

Problem #2: The file expires after 6 months. So why would I waste the time downloading music from this service if in 6 months I’m going to have to redownload the songs I like all over again?

Problem #3: It won’t burn to CD.

The recording industry is trying a bunch of things to see what will stick in this digital age but I can tell you one thing, this is more trouble than it’s worth and won’t put one dent in [peer-to-peer music sharing]. Really, is the music industry full of morons who think that making it harder for their customers is a good business model?

So on the consumer side, SpiralFrog has a problem convincing people to go through all this trouble to get free music. On the business side, it also has the problem of trying to get enough advertising money to support itself and the big payments it makes to the record labels. MarketingShift’s John Gartner has serious doubts about that.

“Allowing music to be downloaded for free is nuts,” Gartner writes. “Yes, the International Federation of Phonographic Industries says there are 40 illegal downloads for every legal one. But getting a penny or two to advertise to the few who aren’t already illegally downloading music will be a big money loser…Perhaps SpiralFrog will limit the free downloads to less popular tracks, and in that case nobody will use the service. This service will have a lifespan much shorter than your average leopard frog (5-8 years).”

Ouch. One thing in SpiralFrog’s favor is that its service doesn’t exist yet, so there’s still time to tweak the business model and figure out how to satisfy listeners while also bringing in enough advertising money. More than anything, though, this free-stuff-for-watching-ads model has been tried before in the dot-com boom, and there’s a good reason those companies went bust — the business models didn’t work.

What do you think? Would you try out SpiralFrog or is the service asking too much from you? What type of digital music service would you prefer? Share your thoughts in the comments below.