Swedish music streaming service offers 'freemium' model

After long delays, European music streaming service Spotify finally launched in the U.S. on Thursday, giving Americans their first crack at an on-demand catalog of 15 million songs, available for free. But whether the service will be the game-changer some have predicted or merely another entry in the increasingly crowded, convoluted digital music sphere is very much an open question.

Founded by Swedish entrepreneur Daniel Ek, Spotify launched in 2008, quickly spreading to seven territories on the Continent. The company offers a three-tiered subscription model: a free tier is ad-supported, while two paid subscription tiers offer ad-free listening, higher bitrates and mobile device access.

While its success in Europe is unquestionable — prior to the U.S. launch, it boasted 10 million subscribers, 1.6 million of whom paid for premium models — the company faced far less competition on the Continent than it will find Stateside. U.S. companies like Rdio and MOG already offer similar services (though none yet using the “freemium” model that has helped Spotify and Pandora boast ever-expanding user bases), and Internet radio providers Pandora and Slacker (along with fresh competition from Clear Channel’s iHeartRadio) add to the pressure. (In its first presentation with analysts as a newly public company earlier this week, Pandora announced it had passed the 100-million registered users mark.)

Further non-direct competition will come from cloud music storage, a field in which Apple, Google and Amazon are already fighting for supremacy. And even newer models, like Turntable.fm’s user-generated music “rooms,” offer even more options. Digital music’s first major war erupted due to a multiplicity of digital download methods, and only Amazon and Apple’s iTunes emerged victorious. It’s difficult to predict if these various models can coexist, or whether they’ll cannibalize one another or fall away as a single leader emerges.

Subscription streaming service Rdio, which has serious designs on expanding into South America and Asia as Spotify encroaches into the U.S., sees its advantage in the social sphere.

“You look at all these services that do on-demand streaming,” said Rdio CEO Drew Larner, “and everyone’s catalog is roughly the same amount of tracks, the price points are the same, and the functionality generally is the same. When you dig down to the next layer, what we’ve done that I believe is unique is that we’ve built our network around social discovery.”

MOG has an advantage over Spotify in the social sphere as well, having initially been conceived as a blog network.

Though never confirmed by either company (Spotify did not respond to repeated calls for comment), reports have been steady that Facebook and Spotify are planning a collaboration that could be vital to increasing the latter’s exposure. Notably, former Facebook partner Sean Parker sits on Spotify’s board of directors, and Facebook CEO Mark Zuckerberg has been a vocal proponent of the service.

The record industry had long been skeptical of Spotify’s free membership tier, a concern the company addressed this spring by imposing limits on the number of monthly hours of music free users could access. Nonetheless, securing the blessing of all four major label groups was a challenge, and the last label group to agree, Warner Music Group, jumped onboard only the day before Spotify’s launch.

As MOG chief exec David Hyman noted, the fact that U.S. labels have gotten behind Spotify opens up new channels for Stateside streaming services as well.

“We’ve been focused on coming out with a more robust way for people to try our service for free,” he said. “I think that Spotify breaking through with the labels in terms of getting them over the hump in letting companies in the States do a more robust free offering is great for everybody. You can expect a more robust way for people to try MOG coming down the pipe in the near future.”

In addition to the labels, performing rights org ASCAP announced it had a deal in place with Spotify this morning, and BMI is still in discussions.

“The financial aspect of Spotify is good,” said ASCAP exec VP of marketing Phil Crosland, “But what’s most important is that this sends a message to the industry that songwriters should be valued for their contributions to a music site’s success.”

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