December 8, 2010 at 4:03 pm

Estimate: U.S. Spotify Would Have 1,115,516 Subscribers, $127,168,824 in Annual Revenue

Spotify CEO Daniel Ek and the author discuss Spotify's future in March before a crowd of thousands at the SXSW conference in March 2010 (photo: Jim Merithew, Wired.com)

Spotify, an alluring music subscription service that attracts users with free access to a massive music catalog on their computers in the hope that they eventually pay for access to their account within Spotify apps for iPhone, Android, Symbian, Windows, Palm smartphones, has officially announced that it will miss its self-imposed deadline of launching in the United States by the end of this year.

By our calculations, Spotify’s delayed U.S. launch is leaving hundreds of millions of dollars in annual revenue on the table from over a million potential American subscribers.

If the same percentage of the United States population were to pay for Spotify as has chosen to do so in Europe, the service would attract precisely 1,115,516 paid subscribers, making it the most popular on-demand music subscription in the country. (Rhapsody, the current U.S. market leader, had only 650,000 users as of May — a number that had dwindled from 800,000 over the previous year.)

We calculate that those 1,115,516 U.S. Spotify subscribers would generate at least $127,168,824 in revenue each year, which is nothing to sneeze at.

Here’s how we came up with those figures.

(To be clear, these are estimates. Europe is not America. One could argue that U.S. music fans have more subscription alternatives to Spotify than exist in Europe, but by the same token, there really is no real equivalent to Spotify here, because all of our music subscriptions are only free for a limited time, whereas the free version of Spotify allows 20 hours of listening per month forever. And that is precisely is how the company claims it attracts paying customers: They get addicted to the free version on their desktops, then want to pay to remove the listening limit and advertisements, increase the service’s sound quality, listen without an internet connection and — most importantly — access their albums and playlists on their smartphones.)

In the countries where Spotify is available — the United Kingdom, Finland, France, Netherlands, Norway, Spain and Sweden — it now claims over 750,000 paying subscribers, as mentioned above. (And unlike Rhapsody’s subscriber base, Spotify’s number keeps climbing; it claimed only 650,000 at the end of October).

The combined population of countries where Spotify is available was 206,411,163 in 2009, according to the World Bank.

I've been using Spotify in the United States for nearly two years; sometimes it helps to be press.

Given that the same organization pegs the 2009 United States population at 307,006,550, we simply applied the same fraction of paying Spotify customers in those European countries to the U.S. population. In doing so, we found that 1,115,516 Americans would pay for the service if it existed here.

Now for the revenue. Spotify claims that 90 percent of its paying subscribers opt for the more expensive, 10-Euro-per-month option, which allows use of the Spotify app on mobile phones rather than the 5-Euro, desktop-only option.

In the United States, subscription services typically set subscription fees at $10 and $5 per month for those same features. So if U.S. music fan behavior once again mirrors those of Europeans, Spotify’s annual subscription revenue — not including money generated by advertisements in the free version — would total a whopping $127,168,824, much of which would go to record labels, publishers and artists.

A source close to the situation had already said months ago that Spotify wouldn’t launch in the U.S. this year, so this delay comes as no surprise. Insiders agree on the reason for this: Record labels and publishers are apparently unwilling to agree to licensing terms that would allow the company to stay solvent while offering a free version — even one that limits listening to 20 hours per months — for Americans to use in perpetuity. Perhaps they should, given these estimates.

Spotify CEO Daniel Ek (above left) announced this new 750,000-paying-subscribers figure at the D:Dive Into Mobile conference in San Francisco on Tuesday. Wisely, Ek refused to re-commit to a specific time-frame for when the launch will happen — we say “wisely” because after he had promised to launch here by the end of the year, the labels he was hoping to woo gained an upper hand in the negotiations. (Spotify was the only party to those negotiations for whom the clock was ticking.)

“We are definitely going to do the U.S.,” said Ek. “What time horizon are we going to do it in? We’ll see. You’ll have to watch this space. I won’t commit to a specific date.”