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Spotify sets its sights on iTunes, further taunting U.S. music fans

April 27, 2010 | 12:21 pm

Spotify, the much-hyped European subscription service that still does not have a U.S. release date, unveiled a host of new features today, many of which are designed to make the player a user's destination for hosting and sharing music. Spotify remains available in just a handful of European territories, but has already boasted more than 7 million users, and today's update will bolster their accounts with added social networking features. 

But perhaps the most enticing new addition is what Spotify has deemed "The Library." In short, the feature will scan the music on a user's hard drive -- everything most of us are listening to  via iTunes -- and allow it to be accessed directly via Spotify. With Spotify, a user's long-accumulated collection of music could now stand alongside everything available on the service, creating less of a distinction between the music that is owned and stored on Spotify, and thereby allowing subscribers to use Spotify as a full-on music management service.

Spotify is based on the so-called freemium model, which offers users the ability to stream music with ads at no cost, and premium services are then offered for a monthly fee of 10 euros (about $13). Spotify's premium service streams higher-quality audio files and lets users download and play songs on their smart phones. Users also have the ability to listen to music when not logged into the service, and now will have the ability to access pieces of their entire collection via Spotify's mobile phone applications.

While Spotify's new social-networking add-ons will allow users to better integrate their service with their roster of Facebook friends, including the ability to send a track to a friend by simply dragging and dropping the song, Spotify's ambitions to merge and host a user's collection have the potential to reshape the music market -- if, of course, labels and publishers can come to an agreement with Spotify and actually make it available. To counter, many speculate that Apple's iTunes service is working on a similar offering, as signified by its purchase of LaLa.com, which also had cloud computing ambitions, allowing music to be copied and stored on the company's servers. 

Spotify creator Daniel Ek described his goals earlier this year in Los Angeles. "We want to be the platform where you organize your music. This is the cloud that everyone is talking about ... It's sort of like the world's biggest music library on one hand and digital mix tapes on the other hand."

What's more, it gives the music industry something it has sorely lacked in the digital marketplace: Control. 

While labels are debating the feasibility of the subscription model, Spotify is offering a direct alternative to peer-to-peer networks and the bounty of free music that is the Web. By allowing users to access their music collections via the cloud, Spotify would have access to an unprecedented amount of data on its subscriber's listening habits. By merging said collections with the tracks available on Spotify, the service has the potential to be the go-to-stop for all music on the Web.

So what's the hold-up? Major label execs I spoke with at South by Southwest said Spotify's conversion rate from free-to-paid users, which right now is around 5%, was simply too low. One executive at a major record label, who spoke on condition of anonymity because negotiations with Spotify were ongoing, said that the advertising revenue generated by the free service was inadequate and that labels and publishers would prefer to see 15% of Spotify's listeners subscribe to the premium service.

It's caused some in the online sector to wonder whether Spotify will have to directly alter its service for the U.S. market, either limiting the music available for free and forcing users to buy in at an earlier point. Yet existing subscription services, such as Rhaposdy , eMusic and Napster, have failed to catch on with listeners at large, and the challenge for Spotify will be entering the U.S. market without being muted to the point of irrelevancy. 

-- Todd Martens


Spotify CEO Daniel Ek hopes to bring music streaming service to the U.S.