The Big Spotify Surprise: Free Music On Demand For SIX MONTHS

Spotify founder Daniel Ek

[credit provider=”Spotify”]

Spotify has been cagey about how much free music U.S. listeners can get — the news wasn’t in its press release this morning, and they were slow responding to questions. Another report suggested the free tier would max out at 20 hours per month.That’s wrong. There will be no cap on the free tier for six months.

In other words, Spotify will let you to listen to anything in its library of 15 million songs, as many times as you want, for as long as you want, for six whole months. After that, some kind of limit will kick in, but Spotify isn’t saying what it is.

(Right now, you have to apply for an invitation to use the free tier. We’re not sure how long that process will take.)

Three points:

  • Huge competitive advantage. No other U.S. music subscription service offers anywhere close to this much free music. Rhapsody, Rdio, MOG, and the rest suddenly look like ripoffs.
  • But economically unsustainable. The way music licensing has traditionally worked, Spotify would be paying the labels and publishers the same rate for all songs that users stream on the service — whether they’re getting them for free or paying. That’s insane. According to CEOs of other music subscription services, it’s hard to break even on streams even with close to 1 million paying customers. It’s literally impossible to break even by placing advertising on free streams — the ad rates are too low.
  • Unless Spotify got a special deal. These CEOs also tell me that every deal for a streaming service must be negotiated separately. So it’s possible Spotify cut a special deal — probably involving a much bigger up-front payment. That would explain why it took so darn long for Spotify to get the labels on board and launch in the U.S.
  • No wonder Spotify needed so much funding. This also explains what Spotify is going to do with the $100 million investment from Kleiner, DST, and Accel.

So Spotify is basically going to invest a ton of money in up-front marketing to build unbeatable market share and make all the other services irrelevant. That’s a huge risk — but also the kind of ballsy move that winning entrepreneurs like Bill Gates and Larry Page would appreciate.