An advertising slump and flawed business models have been blamed for the demise of free music streaming site SpiralFrog, that shut down on March 19, and Ruckus, a student-orientated site which closed early last month.
Larger sites are also rumoured to be struggling, calling into question record company demands for multi-million dollar royalty advances, especially during the infancy of such services.
Michael Bebel, who ran Ruckus, said that music companies have to understand that the ad market in this space is still developing. "This means that they need to be happy with a revenue-share model that is not all that significant in terms of per-play," he added.
The news comes after Google's YouTube lost permission to use Warner Music's songs in exchange for advertising revenue. The label said that the video-sharing site was not doing enough to convert listeners into buyers.
A workable alternative to illicit trading, which accounts for the vast majority of music downloads, is now proving difficult. Sales of tracks that can be played without technological restrictions is currently the only successful business model.
However, James Heckman, former chief strategy officer at Fox Interactive, MySpace's parent company, said: "A lot of these guys are going to be wiped out, but everything that is happening right now doesn't matter in the long run."
Other online music sites, including Last.fm, Spotify and MySpace, are making changes to their service to bring in extra revenue.
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