You have to define 'music service' in this question. There are so many different types of service now from playlist based audio/video sites to the vanilla-download sites that writing off advertising supported services as a whole is a complex question. Spiral Frog was always doomed and its launch suffered from poor user-understanding of what the offer was. I recall people describing Spiral Frog in a variety of inaccurate ways.

i personally think it's goofy to say that ad-based music will never figure itself out. hey -- right now we have a $20B business in the US alone based on free, ad-based music...it's called terrestrial radio. and it's done ok (twice the market size of direct pay music, aka the labels)

Anyone that says they are doomed has not used Spotify yet. It looks and feels like iTunes, except you don't have to pay! I'm listening to it now and loving it. The ads are few and far between and do not interfere too much with my listening - it's WAY better than radio. I might go so far as to say it's the future. Check it out!