Spotify Is Coming

Europeans are talking. Right now, millions of music fans on the other side of the Atlantic are buzzing about the biggest thing to hit the music scene in years and no, it’s not the second coming of The Beatles. It’s Spotify, an online service that allows users to stream any song from a massive library on demand, all for free. And yes, it’s legal.

The U.K.-based company has signed deals with music rights-holders and pays them a portion of the money it makes from advertising. In addition, Spotify Premium gives users ad-free access to the company’s library for ‘‚¬10 a month (roughly $15). Spotify is currently available in the UK, Sweden, Norway, Finland, France and Spain.

So, why should you care about some European music site? Spokesman Andres Sehr says the company hopes to launch its service in the U.S ‘€œlater this year or early 2010.’€ That means that U.S. music fans will soon understand why Spotify has been so successful overseas. In the U.K., for example, the website had to go back to an ‘€œinvite-only’€ model due to an overwhelming number of new subscribers. In Sweden, Spotify boasts a staggering one million subscribers (out of a population of only 9 million), and accounted for 35% of the country’s digital music revenues in the month of July, according to CEO Daniel Ek in a TechCrunch.com interview earlier this year. In addition, Apple recently approved the Spotify iPhone app., meaning that U.S. consumers will soon have access to streaming music while on-the-go.

While it’s tempting to get caught up in the hype, many American music fans may wonder what’s so special about Spotify. After all, aren’t there already plenty of websites that stream music? The simple answer: yes, but none that are this reputable. First of all, Spotify has the most extensive library of any streaming site. Deals are in place with all four major labels, as well as independent music aggregators Merlin, The Orchard, and CD Baby, giving Spotify the rights to a vast array of music. In addition, Spotify’s clean, fast-loading interface makes music discovery fun and easy. Anyone who has ever struggled with MySpace knows the value of a fast-loading interface, free from excessive user-generated content. All tracks are streamed as high-quality audio files, and unlike Last.fm and Pandora, Spotify allows users to choose exactly what songs they want to listen to, functioning more like a personal music library than a radio station.

Wired.com Staff Writer Eliot Van Buskirk, one of the few people in the U.S. to gain access to Spotify using a special press account, describes the service as ‘€œmagical.’€ ‘€œIt’s like having the world’s biggest iTunes collection right there on your computer — a near-perfect way to discover and collect music,’€ says Van Buskirk. Bruce Houghton, author of the music industry blog Hypebot and another press-account holder, describes the service as, ‘€œan almost infinite juke box that suits every mood.’€

Despite the overwhelming positive response Spotify has received, questions remains as to whether it can succeed. Spotify is not yet profitable; according to Ek, only about 90,000 of the one million Spotify subscribers in the U.K. have upgraded to the premium version of the service. While the company does generate revenue from advertising, it will need to convince more users to upgrade to the premium service if it hopes to turn a profit.

Spotify also needs to appease nervous record labels that are scared of sacrificing their substantial iTunes download revenue. Indeed, there is legitimate concern as to whether Spotify can coexist with the iTunes Store (some have even called the company the ‘€œiTunes killer’€). As a result, American labels may be tempted to make less than favorable deals with Spotify in order to protect digital download sales.

The company also must convince businesses to spend scarce advertising money on an unproven start-up. Spiralfrog and Ruckus have both tried to succeed under Spotify-like business models, yet failed to generate enough advertising revenue to survive. Spotify must overcome the same obstacles that these services succumbed to if it hopes to avoid the same fate.

While Spotify’s success is not guaranteed, its potential is undeniable. If the service becomes as popular here as it is in Europe, it could create something that the U.S. music industry hasn’t experienced since Napster: a once principal online destination for music fans. Today’s internet is a confusing mess for fans and creators alike. With so many services, music lovers often don’t know where to go to find tracks from their favorite bands and like-wise artists don’t always know the best way to reach their scattered fans. The major labels all admit that their biggest mistake in the early days of file-sharing was not licensing Napster. It was a single service that everyone was using, and by taking it down, the labels exiled music fans in every direction across the vast wasteland of the world-wide-web. If Spotify can unify the sphere of online music (much in the way that Google has unified search or Amazon has unified retail), the music industry will finally be able to begin recovering from their biggest blunder.

Spotify also has the potential to help solve the file-sharing problem. Who cares about actually downloading songs if you can easily stream almost any track ever recorded, on-demand, whenever you want, wherever you want, for free? According to Ek, surveys indicate that 80% of Spotify users have stopped file-sharing. Bruce Houghton testifies that Spotify has, ‘€œbecome my primary source of music discovery. When a writer or friend mentions a new band, I fire up Spotify to listen.’€

If music fans stop downloading and instead start listening to their favorite bands on Spotify (which will pay the bands), the music industry just might receive the jolt it needs to pull out of its current slump. If you’ve been looking for the next big thing to happen to online music, look no further; Spotify is coming.