Spotify executives are among those who disagree with predictions of a demise… (Kelly West, AP )
Sweden's Spotify digital music service arrived in the U.S. with its catalog of 15 million songs and an operation that is primed to shake up the world's largest and most lucrative music market.
With 10 million registered users in Europe, Spotify offers limited hours of music for free or streams unlimited songs for a small fee to computers and mobile phones. That model has analysts wondering if its U.S. debut Thursday spells the beginning of the end for the 99-cent download market dominated by Apple Inc.'s iTunes store.
"The download business is basically over," said Aram Sinnreich, an assistant media professor at Rutgers University.
The digital music market appeared to be stagnating last year with sales volume growing just 1% from the previous year, according to Nielsen SoundScan.
But sales of digital tracks regained momentum in the first six months this year, increasing 11% from the same period a year earlier. That gave the industry hope that the $2.2 billion U.S. market for music downloads has not lost steam, as some had feared.
And most industry executives, including those at Spotify, insist that music downloads will continue to make up a big portion of the overall $6.9-billion U.S. music business for years to come.
But other experts predict that consumer momentum will favor subscription services such as Spotify, Rhapsody, Rdio, MOG, Slacker and others once users discover that it can be cheaper to rent music than to buy it.
Spotify's U.S. offerings will be largely similar to what it has in Europe, namely a free service supported by advertising and two premium tiers that let users listen without ads on computers and on mobile devices.
The free tier will let new users listen to the company's catalog from a computer connection for six months. After that, users will be capped at 10 hours a month and up to five spins for any particular song.
Subscribers who pay $4.99 a month can access the service without ads or limitations from a computer connection. A $9.99 tier also lets users listen to the service from a smartphone, such as an iPhone or Android, Palm or Windows 7 device.
For those who aren't able to score an invitation to the free service, they can let their wallet do the talking. Customers willing to pay for the premium tiers don't need an invitation.
Among the 10 million registered users in Europe, 1.6 million spring for a premium service.
Such monthly subscription services have been around for a decade. But consumers have been reluctant to try them because the technology seemed daunting or the idea seemed too strange.
That's starting to change as consumers become accustomed to having access to all manner of digital entertainment on their smartphones.
Spotify, with its generous free option, is expected to accelerate that trend, said Ted Cohen, a digital music analyst with TAG Strategic, a consulting firm in Hollywood. He expects users will discover that Spotify offers the same advantages that watching movies on Netflix's online streaming provides over buying DVDs at Best Buy.
"There's a real halo effect around Spotify. The anticipation has been so great that people are going to want to check it out," Cohen said. "And when they do, they will finally understand … that streaming for music works just as well. In a totally connected world, 99 cents a song is a bad value."
Still, Spotify executives are among those who disagree with predictions of a demise of the download business, in which Apple currently has a greater than 60% share, according to NPD Group, a market research firm.
"In markets where Spotify operates in Europe, digital downloads actually grew," said Ken Parks, Spotify's chief content officer. "People are finding that Spotify is a great way to discover new music that they can purchase."
Russ Crupnick, a music analyst with NPD Group, agreed.
"I'm not ready to anoint Spotify as the latest in a long series of supposed iTunes killers," Crupnick said. "For heavy consumers of music, you could argue that services like Spotify leads them to buy even more music."
For now, Spotify, whose free service is open only to those who receive an invitation from the company or its partners, appears to be off to a good start.
Klout, a social network ranking site that was giving out invitations, nearly crashed Thursday after being flooded with requests. Klout stopped issuing invites, saying it would resume Friday.
"The reception has been overwhelmingly positive," said Parks, who declined to divulge the number of people who have signed up for Spotify. "But it's just early hours."