Peter Kafka

Recent Posts by Peter Kafka

Spotify's Real News: No News! But Big Bags of Cash Might Help

Nope. Apple’s not buying Spotify.

Now, on to real news: There is no official news about the streaming music service’s attempt to land on U.S. shores. Spotify has yet to land a single U.S. label deal, even though it continues to insist that it will get things settled in time for a 2010 launch.

But the company has made progress with the labels in recent weeks, according to multiple sources. That’s in part because it is now willing to hand over real money, either in the form of advances or as guarantees spread throughout the life of a multiple-year contract.

How much money? Depends on who you talk to: One source thinks Spotify is now offering “tens of millions” to the labels to get a U.S. deal done; another person familiar with negotiations thinks Spotify will eventually end up spending $100 million to get the big four labels–or at least three of them–in line for a launch.

But money alone won’t get Spotify into the U.S. Or put another way: The amount of money will depend in part on the real sticking point in the negotiations–the amount of free music that Spotify users can listen to before they need to become paying subscribers.

In Europe, where Spotify has been a very big success, listeners can stream an unlimited amount of music, on demand, without ever paying a cent. But in the U.S., rival streaming services like Rhapsody, MOG and Napster generally only offer a very brief trial period of a few days before requiring that a pay wall go up.

For the past two years, Spotify has insisted that free, unlimited streaming is the only way the service will work, because that’s Spotify’s most effective marketing technique. Subscribers who do pay up get benefits like ad-free music, and the ability to port their songs to mobile devices like iPhones.

But the labels, most notably Warner Music Group, have insisted that unlimited free streams only serve to strip away their product’s remaining value–if you can listen for free on Spotify, why would you ever buy another CD or iTunes single?

“[Spotify executives] are perennially underestimating label resistance to the free stuff,” says an industry source familiar with the discussions. “And it seems the checks are either not big enough or the labels really won’t give on free.”

Until that gap gets solved–either via compromise or cash–Spotify can’t come to the U.S.

The company had recently been discussing a mid-November launch date, but unless things move quickly, that can’t happen. And even people who are optimistic about the company’s chances concede it may not get it done in time for a pre-Christmas launch, which would force things back to 2011. Spotify declined to comment.

Among the four labels, Sony appears closest to a deal, sources say–a pact is “essentially signable,” according to one source, though another insists there is nothing “executable.” Sony declined to comment. In order to launch, though, Spotify will also need Universal Music Group, the world’s biggest music company, and either Warner or EMI Music Group.


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— Om Malik on Bloomberg TV, talking about Yahoo, the September issue of Vogue Magazine, and our overdependence on Google