When Spotify planned a big party, in London’s fashionable Camden Thursday night, specifically “to celebrate reaching 10 million users across Europe”, I could hopefully be forgiven for having interpreted it as an acceptance that Europe (and Scandinavia) would remain the music service’s only customer territory, that its long-sought American dream had now foundered for good.
Indeed, with 500,000 paying subscribers (precisely in the five percent conversion rate that many consider a benchmark freemium ratio), Spotify is already amongst the world’s biggest subscription music services without having broken the U.S.
But word from the party, at which Spotify hosted a few hundred people, is that the start-up does indeed now expect to make good on its latest expectation, to launch before 2010’s end there. Specifically, a go-live date between Thanksgiving and Christmas is in the works.
Some label deals are thought to be signed or in the signing process. Regardless of detail, the company is not backing away from a 2010 launch timetable. Spotify’s top brass Daniel Ek (CEO) and Shakil Khan (“head of special projects”), who have spent many of the last few months in New York, jetting from London and Stockholm, were delayed from even their big soirée this evening, by business in the Big Apple.
Over the last year, healthy scepticism over whether Spotify can reconcile its likely large royalty outgoings with its free, ad-funded model and with its premium, device-centric service have given way to an obsession over whether the service can launch Stateside at all.
For sceptical U.S. onlookers, who forget that indigenous services like Rhapsody and Mog.com are not, by the same token, available outside North America, it seems to have become the only talking point surrounding the service, overshadowing both those original viability questions, Spotify’s ad and subscription gains to date and the slow progress of getting bundled with third-party billed services, even in Europe – a model it had been courting strongly.
U.S. labels have appeared more reticent to license their songs to free, ad-supported online music distributors, even though their European divisions, which apparently hold Spotify equity, have done so. Warner Music Group (NYSE: WMG) has proved particularly averse to the idea despite otherwise being a strong exponent of unlimited-access and mobile-access services like Spotify.
But then, Spotify is often misconstrued through onlookers’ fixation on that free model, and lately Spotify has been trying to clarify the perception Stateside. It’s not the only card in the deck – in truth, Spotify now has four tiers…
1) Free (the ad-supported, unlimited service is now effectively shut to newcomers except those with early-adopter invites).
2) Open (a free variant that’s limited to 20 hours a month as Spotify tries to manage bandwidth costs).
3) Unlimited (a £4.99pm plan that removes ads), and…
4) Premium (a £9.99, ad-free plan with access via mobile and other devices like Sonos).
Apparently, the U.S. launch is likely to involve some kind of free component, though it’s unclear what form.
Though subscription is naturally the biggest income source, Spotify says its ad sales – a mix of visual display, audio and engagement – are growing nicely in to a healthy business in its own right. Royalty outgoings are thought to be considerable, but it’s hard to know how much Spotify is spending there since, bound by its label relations, neither Spotify nor the PRS For Music royalty collector will talk about what kind of license the service pays. Spotify is not yet thought to be profitable – but then, how many start-ups, as Spotify still considers itself, are?
The real question marks must be not over the U.S. launch nor the route to profit (both are progressing) but in getting carried with third-party services. Nearly 12 months ago, Ek said: “The key for us is getting music in to people