Spotify could launch in US without major labels

Universal, Sony, Warner and EMI may not all be on board for American version of the music-streaming serviceSpotify is moving closer to a US launch for its music-streaming service, though it could reportedly be prepared to do so without having the four major record labels on board.People familiar with the company's negotiations with Universal, Sony, Warner and EMI ? it has been in discussions with EMI for more than a year ? told the Financial Times Spotify is considering launching in the US without having all four on board at launch.The company's accounts for 2009, filed only last week, paint a bleak picture with a net loss of �16m on revenues of �11.3m. The company's auditors, Ernst & Young, warned that "material uncertainty" could cast "significant doubt about the group's ability to continue".Spotify has expanded into seven European countries since its 2008 launch, though protracted negotiations with major US record labels have halted its ambition to expand into north America. In October, the music-streaming service said it had around 10 million users ? though only about 500,000 of these are paying for the premium offering.But now the European startup is likely to hasten to a US launch as its board grow impatient at the delay. Daniel Ek, Spotify's co-founder and chief executive, has previously said the service would have a US presence by November.A Spotify spokesman said: "2009 saw us focus on establishing a new and innovative music service and bringing it to millions of people across Europe. The groundwork laid in our launch year has been crucial to the significant achievements made in 2010. Further strengthening and expansion of the service remains our top priority."Spotify has risen to prominence across Europe as a legal alternative to free-at-the-point-of-access music. Users can download the Spotify application for free-to-listen-to music punctuated by occasional advertising, similar to commercial radio. It also offers a premium service where users pay for extra features such as a mobile app and offline streaming.This business model, which the company has said is fundamental to its attraction, lies at the heart of its wrangle with US record labels, which have failed to warm to the idea of free streaming. Spotify converts 5% to 7% of its free customers into subscribers, the Guardian understands.The company's report for 2009 shows it made �6.8m from subscriptions and �4.5m in advertising revenues. But Spotify's cost of goods, which includes licencing fees paid to record labels, reached �18m.Mark Mulligan, a music analyst at Forrester Research, estimated that the best case scenario for Spotify would be to convert 10% of its user base to paying customers. He said the company is "making great progress" but really needed to hit the 10% mark "before they can start patting themselves on the back"."Free music itself is never going to work as a business model while there is such a disparity between ad revenues and license fees. But the freemium model has solid merit," Mulligan added."More promising though is the subsidised model whereby music feels free to the customer but is in fact paid for by someone else, such as an ISP or phone company. That is the mass market way to square the circle of people not wanting to pay for music but record labels needing to be paid."Kieron Donoghue, founder of the Spotify-associated ShareMyPlaylists.com, said that the �4.5m advertising revenue for 2009 was "no mean feat" for a startup. The company's proportion of revenue from subscriptions ? 60% ? was a "huge testimony to the viability of the business model", Donoghue added."By taking their time and making sure they get the US launch right, they have done exactly the right thing. You only get one chance to launch in the US so they must make sure that they have got the right model in place before they do," he said.SpotifyInternetDigital music and audioDigital mediaMusic industryJosh Hallidayguardian.co.uk © Guardian News & Media Limited 2010 | Use of this content is subject to our Terms & Conditions | More Feeds

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