US labels worried about Spotify’s business model - Rumour

Spotify's US launch is reportedly delayed due to record label concerns about the music service's ability to convert a sufficient number of users to its subscription-based premium offerings. The reports come a week after Spotify CEO Daniel Ek admitted at the Monaco Media Forum that the company will miss its target of launching in the US by the end of 2009. Explaining the delays, Ek referred to complex talks with "thousands" of US publishers.

According to a Financial Times report, which cites unnamed sources at three of the four major labels, financial concerns are currently the biggest sticking point in Spotify's US negotiations. One label insider reportedly says: "As an ad-supported service the economics don't work at all," while another tells the FT: "We think Spotify is a great service but they're going to have to convince us they can convert enough people from free to paid subscriptions to make it worth our while."

However, Spotify communications manager Jim Butcher brushes off the reports, telling StrategyEye: "We've never given an exact launch date but have said we'd like to launch in the US in Q4 2009 or Q1 2010. We're working towards rolling out in the US as soon as possible. Signing up all the thousands of rights holders just takes time - it's a huge market."

Despite Spotify’s claims, speculation is growing that the firm will have to adapt its business model to fit the US market. Many are worried that audio ads will not earn enough to meet pay-per-play royalty costs. The FT claims US majors are looking for reassurances that Spotify can convert one in 10 users to its subscription model. This is problematic as Ek admitted in September that it has not reached the 10% level in Europe.

Speaking to the New York Times last month, the president of Sony Music's global digital business said: "We like Spotify as our partner in Europe, but we would like them to move more toward a paid subscription environment."

Spotify admits there may be differences in the way it conducts its business in the US. "The US service will have certain differences,” says Butcher. However, he claims the US service “will offer the same high quality, simplicity and speed as the European service we have today".


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