Monetizing a streaming music website may seem like a far-fetched idea in a day and age when piracy is running rampant, but it's exactly what Daniel Ek, CEO of online music service Spotify.com sees in his company's future.
Spotify has taken Europe by storm. The company, which says it has nearly seven million users in six countries, is an on-demand music provider that allows customers to stream selected songs from any computer with an Internet connection—for no charge.
The music is free because in-between songs, users must listen to commercials from a variety of advertisers, which fund help fund the licensing of the music offered. The idea is simple: Give consumers a little bit for free, and hope they sign-up for the premium ad-free service Spotify also offers.
The ad-free service lets users stream music from a variety of mobile devices, as well as their personal computers. The company says 320 thousand paid subscribers have signed up for the premium service.
The concept isn't new and, in fact, many streaming services already exist. Spotify differs from most other music sites by playing on-demand music only and by not selling songs for download. From a technical standpoint, industry experts praise Spotify's interface and ease to search and listen to music.
Spotify, which has already been valued at approximately $250 million, has created a lot of buzz in the online music industry—both positive and negative. According to the Financial Times, Chinese communication tycoon Li Ka Shing and British venture capital firm Wellington Partners have invested close to $50 million in Spotify. All four major music labels (Universal Music Group, Sony BMG , EMI Music and Warner Music Group ), along with one independent label, also own a reported 17.3 percent of the company.
The investments in the company could provide enough capital to satisfy the major labels' upfront licensing fees, which could be just what Spotify needs to launch in the United States. However, free streaming music does have its critics. Edward Bronfman, chairman of Warner Music Group (which has a licensing deal with Spotify in Europe) said in his February earnings conference call that "free streaming services are clearly not net positive for the industry."
Bronfman's comments come on the heels of speculation that Spotify is gearing up for it's U.S. debut. Those rumors came to a boiling point in Austin, Texas this week when the company's CEO delivered one of the most anticipated keynotes of the South by South West (SXSW) conference.
During his keynote, Daniel Ek introduced the audience to his service, showing them how it works and where he sees the company's future. Although Ek was not willing to tell the SXSX audience about Spotify's expansion, he did tell CNBC that the service will launch in the U.S. this year.
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