The most eagerly anticipated music service this side of the Atlantic Ocean didn’t cross the pond this year. What’s going on?
I sat down with Gustav Söderström, Spotify’s vice president of products, over the weekend. Spotify is a music service lets you stream more than 6.5 million tracks for free with advertising. The paid version, about 10 euros a month, gives you access on your phone and without ads.
Co-founder and chief executive 26-year-old Daniel Ek, who recently moved to London, is splitting much of his time between New York and the U.K. as the company tries to nail down the right licensing agreements with the major record labels. Last summer Spotify pledged it would be in the United States by year-end, but has since pushed the launch back to next year.
“We can wait. It took us about three years to launch, so we can wait until we get the product right. We don’t want to do this half-assed,” said Söderström said. “We only get one chance to come to the U.S.”
Although there are technical issues like making sure Spotify’s infrastructure scales to accommodate several times its current 7 million person subscriber base, the bigger impediment is the business and advertising side of the equation.
The wrong streaming contracts with expensive quarter or half-cent royalties per play would quickly shorten the company’s financial runway and hand it the fate of other U.S. music startups like iLike and Imeem, which were sold to MySpace earlier this fall. (Söderström wouldn’t comment on Spotify’s contracts specifically, suffice to say that the company “was making money for labels and artists and that the advertising and premium models were working.”)
“We’re getting a lot of pull to be in the States,” he said. “A lot of users want it and the industry is at a point now where they seem to want it.”
Spotify has been using the extra time to hire salespeople across Europe and in the U.S., so when the service does debut it can immediately begin to monetize that base. Ramping up monetization efforts has also meant tweaking advertising to push more conversions to paid subscriptions. When I tried Spotify early this year, filler ads came about once every dozen songs. Now they’re down to about one ad every three to four songs. Söderström wouldn’t talk about conversion rates specifically, other than to say the company “was quite pleased” with them.
In terms of the product itself, Söderström said the company will focus on discovery and recommendations, landing on all mobile platforms beyond the current iPhone, Android and Symbian offerings, and releasing more application programming interfaces to cultivate a stronger developer community. There are already several sites built around Spotify in Europe for sharing playlists.
“Music is one of the most social objects that exists and the majority of people want suggestions because they don’t know what they want to hear,” he said. “Our radio mode is not that good. It could get a lot better.”
Mobile is key as it’s the most valuable part of the paid service. The company recently nabbed a new mobile-focused chief technology officer from mBlox named Oskar Stål, after former CTO Andreas Ehn left to start a project of his own. (Stay tuned for more on that next spring.) Ehn himself said that Spotify’s existing architecture should scale healthily. So their U.S. launch hinges more on the licenses and business development issues.
Söderström said the company has been testing its mobile apps around Manhattan. They work well, but American users will have to rely on cached playlists because of the U.S.’s poorer mobile infrastructure. (Stockholm and Oslo have the lucky honor of getting the world’s first 4G network. On the current network, connection is so good that Spotify mobile streaming works throughout Stockholm’s metro system, even three train levels underground.)
So when will Spotify make its U.S. debut? Soderstrom wouldn’t give an exact date. The team is headed to CES next month in Las Vegas. Are they were going to make an announcement there? As he rushed off to a Sunday meeting with Ek and Stål, Söderström replied with a sly smile. “Maybe — maybe not.”