8/6/2019 Bloomberg Businessweek 2010

1/2

Title:

Authors:

Source:

Document Type:

Subject Terms:

Company/Entity:

NAICS/Industry Codes:

Abstract:

Full Text Word Count:

ISSN:

Accession Number:

Database:

Record: 1

Why Europe's Hit Music Site Isn't Playing the U.S.

Grover, RonaldSatariano, Adam

Bloomberg Businessweek; 6/14/2010, Issue 4183, p32-33, 2p, 1 ColorPhotograph

Article*STREAMING audio*ELECTRONIC commerce

SPOTIFY Ltd.WARNER Music Group Inc. DUNS Number: 943043745SONY Music Entertainment Inc.

NAICS/Industry Codes 454111 Electronic Shopping425110 Business to Business Electronic Markets

The article discusses the inability thus far of online music service Spotify to enterthe U.S. market. Several U.S. music publishers including Universal, Sony, and

Warner won't allow Spotify to make available their song catalogs free tocustomers, as they do in Europe. Instead, they want it to adopt a business modelthat will generate monthly revenues.

694

0007-7135

51396471

Business Source Complete

Section: TechnologyDigital Music

Why Europe's Hit Music Site Isn't Playing the U.S.Big labels have blocked Spotify from offering streaming musicSweden has a new music export, and it's attracting an audience way broader than an ABBA greatesthits album. Twenty-month-old Spotify allows listeners to tune in to their favorite music over theInternet. It has 7.7 million registered users across Europe, according to digital media trackerComScore. That's roughly 10 times the audience of Rhapsody, which has been around for nineyears and is the leading music subscription service in the U.S.

For more than a year, Spotify's co-founder, Daniel Ek, has been trying to bring the service to theU.S. What's stopping him are the industry's four major record labels, Universal, Sony, Warner, andEMI. They have licensed their music to Spotify for use in the U.K., Spain, France, Finland, Sweden,

Norway, and the Netherlands, where most listeners tune in to the service free. In the U.S., the labelswant the service to make them money and help compensate for a 65 percent drop in CD sales overthe last decade.

Aside from the free part, the labels like Spotify for the same reason listeners do. Tunes from its 8million-song catalog load quickly, and listeners can compile playlists of their favorite tracks and gainaccess to them from any computer. "Spotify is the first digital offering that has come along thatpeople find sexy without having the Apple name on it," says Ted Cohen, a former top digitalexecutive at EMI Music, whose Tag Strategic advises companies on digital strategy.

The four big labels want Spotify, now based in London, to junk its free model and find a guaranteedrevenue stream it could share with them, say music executives with knowledge of the discussions.

Rhapsody and U.S. rivals eMusic and MOG charge monthly fees. "Free streaming music servicesare clearly not net positive for the industry," said Edgar Bronfman Jr., chief executive officer ofWarner Music Group, during an earnings call in February. Warner was an early investor in Spotify.

The service already offers two premium plans in Europe: For the equivalent of around $6 a month,

iness Source http://web.ebscohost.com.ezproxy.london.edu/bsi/delivery?sid=224a59...

2 30/04/2011 17:35

8/6/2019 Bloomberg Businessweek 2010

2/2

listeners get unlimited playtime with no ads; $12 buys better sound quality and the ability to playmusic from a cell phone. So far only 320,000 users have signed up for subscriptions, a sign thatEuropeans exhibit the same resistance to paying for music that Americans do. For the recordlabels, clearing that hurdle is crucial as CD sales continue to plummet and Apple's iTunes keeps itsgrip on digital music pricing. "Nothing in digital has been able to counter the decline in traditionalrevenue sources," said Ek, 27, at an industry conference in March. Record companies, he said, are"concerned about how to ensure that people don't stop buying CDs."

The major music companies have been pressing Spotify to ally with wireless service providers sothey can get a cut of the monthly charges. Spotify has tried that, signing a deal with Swedishtelephone operator Telia. Plus, it has created apps for the Apple iPhone and handsets powered byGoogle's Android software.

Google also has been "kicking the tires" at Spotify, according to music executives with knowledgeof the search engine's interest, but no acquisition is in the works. Apple bought Lala, another musicstreaming service, last year, only to shut it down at the end of May. The talk in the industry is thatSteve Jobs wants to incorporate Lala's technology into a subscription version of iTunes, whichwould allow listeners to gain access to their music libraries from any device.

Whether Spotify becomes an iTunes competitor will depend on the fickle tastes of consumers. One

part of the equation will be whether the music labels let it do business in the U.S.

The bottom line: The music majors are pressing a hot European startup to dump its free service asa condition for licensing their tunes for use in the U.S..

PHOTO (COLOR): Spotify founders Daniel Ek and Martin Lorentzon

Copyright Bloomberg L.P., Copyright 2010

~~~~~~~~

By Ronald Grover and Adam Satariano

Edited by Jim Aley

Copyright of Bloomberg Businessweek is the property of Bloomberg, L.P. and its content may notbe copied or emailed to multiple sites or posted to a listserv without the copyright holder's expresswritten permission. However, users may print, download, or email articles for individual use.

iness Source http://web.ebscohost.com.ezproxy.london.edu/bsi/delivery?sid=224a59...

2 30/04/2011 17:35