Spotify, headed by 28-year-old founder and CEO Daniel Ek, gives new users… (Kelly West, Associated…)
Since announcing plans last year to bring its popular digital music service to the U.S., Spotify has become the talk of the industry — the sexy European that is expected to sweep Americans off their feet and electrify the sluggish music market.
Spotify still hasn't made its grand entrance in the states, but it's expected to do so once it signs a licensing agreement with Warner Music Group, the only major record label that's not on board with the nearly 3-year-old Swedish music company.
As Spotify struggles to get endorsements from music labels and publishers, the field of competitors in the U.S. has gotten more crowded with new music services that have launched in the last year or so, while existing companies have jazzed up their offerings to make them more attractive to consumers.
The result: Music listeners in the U.S. now have a dizzying number of outlets vying for their attention.
"Consumers here have a lot of choice when it comes to scratching that itch to listen to music," said Larry Marcus, managing director of Walden Venture Capital, who has invested in a number of digital music companies including Pandora Media Inc. "Subscription music services like Spotify are one option, but there are lots of others, many of them free. The landscape has changed."
What with free Internet radio services such as Pandora; on-demand digital music companies such as Rhapsody, Rdio and MOG; satellite radio company Sirius XM Radio Inc.; and YouTube's trove of free music videos, Spotify will have no shortage of rivals.
Although the stepped-up competition will make things harder for Spotify, the company is still expected to attract millions of users in the U.S. — largely because it gives new users free, unlimited access to any song from a catalog of about 13 million titles for six months. After that, users are capped at 10 hours of listening a month and a maximum of five plays for any single track. The limits are designed to encourage users to pay a monthly fee for the all-you-can-listen buffet.
Most subscription music services in this country allow only a few days or weeks for a free trial period. After that, most charge $5 to $15 a month for on-demand access to music.
But there are other ways consumers can listen to music. Personalized Internet radio services such as Pandora and Slacker have become increasingly popular. Although users can't choose exactly which song or album they get to hear next, they're able to tune in for free. Pandora has 34 million users who have tuned in to its service at least once in the last month. Slacker has more than 5 million active listeners.
"About 80% of all music consumption is radio," said Tim Westergren, a Pandora founder. "Spotify operates in that 20% category."
Spotify, headed by 28-year-old founder and Chief Executive Daniel Ek, declined to comment for this story.
Another recent addition to the market is the so-called cloud storage service, such as Apple Inc.'s iCloud, Amazon.com Inc.'s Cloud Player and Google Inc.'s Music Beta. These services — some of which are free, others of which cost more than $25 a year — let users listen to their existing music collections from a Web browser or Internet-connected phone or tablet.
Satellite radio is yet another option. Sirius XM has an estimated 20 million subscribers who pay $6.99 to $16.95 a month for access to 180 channels of music, talk radio, news and other programming.
"When you look at what's out there for people, it's very similar to what Spotify offers," said Carter Adamson, chief operating officer of Rdio, a music subscription service based in San Francisco that launched in August. "This space has gotten incredibly hot."
Spotify has gotten significant traction in Europe since launching in October 2008. The service has 10 million users, about 1 million of whom pay a monthly fee for the service. By comparison, only about 2 million people in the U.S. pay for on-demand music subscription services. Spotify's prices vary from country to country. In the U.K., for example, it charges 4.99 pounds for unlimited music streaming from a computer and 9.99 pounds for access from computers and mobile devices.
Spotify's entry into the U.S. is still contingent upon its ability to secure a deal with Warner Music Group. It already has agreements with EMI Music, Universal Music Group, Sony Music Entertainment and Merlin, a London organization that represents 14,000 independent artists, including Arcade Fire, Vampire Weekend and Adele.
The stumbling block with Warner, as it was with the other record labels and publishers, is how Spotify can persuade its legions of non-paying customers to open their wallets for the premium subscription service. Spotify's decision in May to cap its free service
after six months succeeded in bumping up its number of subscribers, giving labels more confidence that the free service won't simply cannibalize paying customers.
"Converting these users from free to paying is the heart of the debate," said John MacFarlane, CEO of Sonos Inc., a home audio company in Santa Barbara. "The good news is that we're just in the beginning stages. The market is just starting to develop, and the starting gun hasn't even fired yet."