The start-up company will challenge the dominance of iTunes and is due to launch in December, the Financial Times reports today.
SpiralFrog is headed by Robin Kent, former worldwide chief executive and president of Universal McCann, the Interpublic Group-owned media buying network. He left his role as head of the agency in March 2005 during the £1.5bn General Motors review, which Interpublic eventually lost.
CEO Kent said that offering young consumers an easy-to-use alternative to pirate music sites "will be compelling".
The company is in talks with other music labels about making their recordings available on the service, including Warner, EMI and Sony-BMG. Universal Music, home to bands including the U2, Scissor Sisters and the Yeah Yeah Yeahs, as well as back catalogues of artists such as Bob Marley and Nick Drake, is already backing the company.
Advertisers who are interested in the service include Levi's and Benetton, and another US fashion label, Perry Ellis, has already signed up.
Figures released by the International Federation of Phonographic Industries estimate that for every 40 illegal music downloads there is only one paid-for download.
At the moment, iTunes dominates the paid-for download market, charging 99 cents per song to Americans and 79 pence, which is worth $1.50, to UK users.
Although iTunes is enormously popular, there are still artists who refuse to have their music sold on the service. These include The Beatles, whose record label Apple Corps is in a legal dispute with iTunes owner Apple over the use of the name "Apple"; and Led Zeppelin and Radiohead, who reportedly do not believe that single tracks should be available from their albums.
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