August 18, 2022

New Service Offers Music in Quantity, Not by Song

After nearly two years of stop-start negotiations with record labels, Spotify was preparing to finally open in the United States. With less than 48 hours before its planned start, however, the company still had not completed its final major label deal, with the Warner Music Group.

Yet Mr. Ek said he was confident that there would be no delay, and that Americans would soon be able to experience what has made Spotify the world’s most celebrated new digital music service. He was right. By Wednesday afternoon, Spotify’s deal with Warner was signed, and on Thursday, as scheduled, it will become available in the United States.

“We’ve made it easier to listen, and we’ve made it easier for people to share,” Mr. Ek said. “Hence, people tend to get more into the experience, and they tend to find new music and build larger collections that they want to take with them. And therefore, they also pay more for music.”

If Apple’s iTunes ushered in digital music’s first phase as a large-scale business, then Spotify and other services like it could be its future. Rather than selling individual tracks to be downloaded, subscription services sell monthly access to vast catalogs of music, with whatever songs a listener wants to hear streamed directly to his computer or mobile phone.

Spotify will be offered in the same three-tier plan that it has in Europe: a free, ad-supported version; a basic ad-free version for $5 a month; and a premium service for $10 a month that adds access on a mobile phone, higher audio quality and other perks.

At first, Spotify’s free version will be available by invitation only, given out through current users or by the company to the thousands who have requested the service on Twitter and through its Web site. (Paid subscriptions will be available right away.)

With its lightning-fast interface, easy integration with Facebook and “freemium” business model, Spotify has quickly become the most popular such service in the world. Begun in Sweden in 2008 and until now available in only seven European countries, it has signed up 1.6 million paid subscribers and more than 10 million registered users in total. It also has been one of the fastest-growing investments in the new digital boom, having recently raised $100 million in a round of investment that valued the company at $1 billion.

But Spotify faces a number of challenges in the American market. While the company had relatively little competition in Europe as a subscription service, in the United States a number of similar companies have gotten a head start, including Rhapsody, Rdio and MOG. Like those services, Spotify allows its premium users to save a certain number of tracks to their phones for offline use, in the subway or on the plane. And new cloud services from Apple, Google and Amazon promise to make people’s music collections available anywhere they go.

Whether the company makes a profit is another question. It lost $26.5 million in 2009, but it has not reported on its financial performance for last year.

Spotify’s speed offers the company one significant advantage over its American competitors. (It achieves that speed partly through using a peer-to-peer network, which lets a song play almost instantaneously.) But its crucial selling point has been its free access, which the company believes can lure in new users, who then get attached to its playlisting and social networking features and will be enticed to join.

That reliance on free access, however, has also worried American record labels and some analysts, who fear that it could cannibalize sales from other sources, like iTunes.

“What Spotify seems to be doing is solidifying a perception that music should be free,” said Mark Mulligan, an independent media analyst in Britain. “It’s one thing to download from BitTorrent and keep looking over your virtual shoulder to make sure no one sends you a cease-and-desist letter. It’s another to be streaming music freely from a service that you know even the labels are advocating.”

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