Spotify has a sustainable business model that is providing record labels with significant revenues, according to a top music industry exec. Universal Music International digital VP Rob Wells says that in Sweden, Norway, Finland and France, Spotify now has more than 10% of its users paying EUR10 (USD14) a month. He says Spotify now pays labels a cut of ad and subscription revenues in these countries, rather than paying for each song it streams.
"In all its territories bar two, Spotify pays the labels from a mixture of the money it generates from advertising revenues and subscriptions," Wells tells The Daily Telegraph. "That to me equates to a sustainable business model."
Spotify is still paying labels on a per-stream basis in Spain and the UK, where the proportion of subscribers is lower. However, Wells says the firm's overall performance helps make it the fourth-biggest digital revenue source for Universal outside North America.
Like many streaming startups, Spotify is thought to be relying on its extensive venture funding to stay afloat, but the firm is known to have given major and independent record labels an equity stake in return for favourable treatment. It is likely that label support help the firm outperform rivals such as imeem, which was recently forced to sell up to MySpace.
MySpace Music is one of the few other music services that appears to be coping with the burden of compensating labels, but even though the service is a joint venture between the social network and the major record labels, it is still thought to be losing money.
Spotify is planning to launch in the US in the first half of this year. In a recent interview, Spotify CEO Daniel Ek said Spotify hopes to increase the number of US users who subscribe to a music streaming service by a factor of five. The firm's largest prospective US competitor is Rhapsody, which has a declining subscriber base of around 700,000.
Negotiations with record labels have reportedly held up the service's debut in the country, which was originally scheduled for the first half of this year. The record labels are reportedly keen to see the firm offer a pure subscription model in the US without free streaming. This would ensure its users will generate revenue, but might make it difficult for Spotify to build momentum in a market which already has a number of paid-for streaming services.