European music service Spotify has signed a licensing deal with record label EMI to bring its service to the United States, Peter Kafka reports.The deal brings Spotify one step closer to the U.S. launch it’s been talking about since 2009. Last month, the company reportedly signed a deal with Sony Music, which means it only needs deals with the remaining two major record companies — Universal and Warner — to have a competitive service in the U.S.
Many other companies have already launched subscription-based music services in the U.S. with content from all four major labels and many indies, including Sony’s own Music Unlimited, which launched earlier today.
So why is Spotify having so much trouble? According to Rhapsody’s president Jon Irwin, who has been dealing with these same licensing issues for years, the major labels in the U.S. demand higher royalties for subscription services than for free ad-supported services. But as soon as a provider charges ANY subscription fees, the higher rates apply to all streams, including the free ones. There’s no combination pricing. That’s why there are no freemium music subscription services in the U.S. — only free trials.
Most of Spotify’s 10 million customers are using the free version; only about 750,000 are paying, according to CEO Daniel Ek. That’s a 7.5% conversion rate, which may not make it feasible for Spotify to pay the higher rates necessary to launch a freemium service in the U.S.
Everything is negotiable, so Spotify might be paying more up front, or planning a pure subscription service with a free trial period like all of its U.S. competitors.