New Service Offers Music In Quantity

Daniel Ek, the 28-year-old co-founder and public face of Spotify, the European digital music service, paced around the company’s loftlike Manhattan office on Tuesday afternoon, clutching two mobile phones that buzzed constantly.

Large-scale business

If Apple’s iTunes ushered in digital music’s first phase as a large-scale business, at that time Spotify and other services like it could be its future. To put it more exactly 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-tiered 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.

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 as well 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.

Number of challenges in the American market

But Spotify faces a number of challenges in the American market. During 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.

Spotify’s speed offers the company one significant advantage over its American competitors. Nevertheless its key selling point has been its free access, which the company believes can lure in new users, who at that time get attached to its playlisting and social networking features and will be enticed to join.

Spotify argues that by offering virtually all available music for free, and sharing advertising revenue with record companies, piracy loses its appeal, and consumers who had been lost to the industry can be lured back.

That means that song has to be streamed many times for it to make as much money as a download, nevertheless labels say that as Spotify has grown, those streams have started to add up. Last year, Spotify paid about $60 million in royalties; that made it the second-largest source of digital revenue for European record labels, afterwards iTunes, according to the International Federation of the Phonographic Industry.

“Spotify are currently one of our top digital partners globally by revenue, and in other words with them only being open in seven European territories,” said Simon Wheeler, the director of digital for the Beggars Group, an independent label group whose artists include Adele and Vampire Weekend. “I expect them to be second or third place this year for us.”