January 28, 2011 at 1:00 pm

Spotify: iTunes, Labels Fear Us in the U.S.

The Spotify freemium music service, which lets users listen to pretty much anything they want for up to 20 hours per month for free, has been mostly tight-lipped about its reported U.S. launch later this year — understandably so, considering that its CEO Daniel Ek said as early as 2009 that Spotify was hoping to launch here by the end of that year.

However, Spotify head of business development Faisal Galaria offered remarkably candid comments on possible reasons for the delay, in an StategyEye interview last week that’s now garnering increased attention.

Update: Spotify sent Evolver.fm the following statement on Friday evening: “No one from Spotify has spoken to StrategyEye since early December and the comments made in that interview were taken massively out of context.”

According to Galaria, Spotify has had a difficult time launching here in part because it’s figuring out how to take credit card and PayPal payments here while trying to ink deals with myriad rights collecting societies.

Any digital music service has to deal with those factors, so they could hardly be responsible for the delay of this service, which many — Spotify included — expect to take off in a big way stateside, at some point. More interestingly, Galaria pointed to fear on the part of Apple that Spotify will steal its iTunes customers — and on the part of labels, who he says worry about Spotify taking over the bulk of the digital music market in the states:

“There are existing music services that we would presume pay the labels a lot of money. Not least iTunes – it’s its back yard. We don’t know how the competitors [such as iTunes] are lobbying the labels, what they’re saying and how they might react. But it’s a multi-faceted problem for them, because when we do launch, our anticipation is that we will quickly outpace the competition in the same way that we have done in Europe. Maybe that’s what they [the labels] are worried about. Maybe they like having multiple revenue streams.”

In addition, he speculated that label executives fear losing bonuses related to their company’s existing relationships with iTunes:

If you’re the digital team [at a label] and 80% of your revenue was coming from one place, how much are you going to p*ss them off until someone else can guarantee all that revenue from a new source?
Put yourself into their shoes for a moment – you’re a nice, fat big executive at label X, Y, Z. You’re getting half a million dollars a year as long as you hit your bonus. Your bonus means that 80 percent of your revenues comes from iTunes. Are you going to tell iTunes where to go? Because your half a million dollar bonus has now gone…
You might agree that Spotify is the best thing. [But are you] going to risk it?

So far, Sony has reportedly signed with Spotify, paving part of the way for a U.S. launch, and Spotify has already bought server space and hired staff in the states, so the labels may in fact be willing to risk it.

United States-based listeners might be wondering what all the fuss is about — after all, Spotify is basically just another version of MOG, Rhapsody, Napster and other music subscriptions, right?

To an extent, that’s true, but there’s a key difference with Spotify. Anyone in a supported territory can listen to millions of songs on-demand, without paying anything, for up to 20 hours per month. You only pay for the mobile app version that lets you access those songs and the playlists you’ve created from a smartphone or other non-computer device, the ability to store music on your computer rather than streaming it, higher audio quality, and the removal of advertisements. Meanwhile, those other subscription services are only free for a limited number of days, which, according to the Spotify playbook, is never long enough to turn free customers into paying customers.

So really, the Spotify debate is about whether giving U.S. fans 20 hours of free music per month will leave them enough incentive to pay for a subscription. From that point of view, the lengthy delay is easier to comprehend.

Regardless, given Galaria’s vision of the whole Spotify vs. iTunes vs. major labels dynamic, the following could be the perfect soundtrack to Spotify’s U.S. launch (key lyric: “We are your overlords”):

YouTube Preview Image

via CNET

  • David

    Saying that Spotify is “Just another version of MOG” i akin to saying that Apple computers are “Just another version of a PC”