Spotify sets mobile music free. What took so long?

analysis Even for the music labels' darling, giving listeners their streaming preference -- mobile and free -- took Spotify a long time. Blame the slow healing of the music industry and the morass of music licensing.

Spotify founder Daniel Ek presents the streaming music service's free mobile option at an event in New York. Spotify

The beaten-down music industry adores digital, just not taking risks with it. That began to change Wednesday, and the business is turning to Spotify -- for now -- to do it.

Free, mobile options are the most popular way people listen to streaming music today, but as anyone who has downloaded Spotify's app has discovered quickly -- forget about listening on your phone if you want something unlike the myriad radio options that many others (Pandora, iTunes Radio) provide. That's because the deals Spotify struck with labels only a couple years ago didn't allow for mobile, on-demand streaming without a user forking over $10 a month.

The dilemma: Spotify was striving to break through in the world's biggest music market -- the US -- after rapid adoption in parts of Europe, all while facing a near future in which giants like YouTube and Beats would add their own subscription-music services to an already competitive market, and Spotify couldn't give listeners the one service they wanted most.

That ended Wednesday, when the Sweden-based company unveiled a first-of-its-kind free mobile offering. It allows mobile users to listen to any song in the catalog -- narrowed down to a single artist, a single album or a single playlist -- without a fee, so long as the songs are shuffled. It's a compromise from true on-demand, but it's a big step toward the dream of Spotify founder and Chief Executive Daniel Ek : Bring all the music in the world to all the people in the world , with Spotify providing the soundtrack to everyone's lives.

More importantly, it shows the music industry is gravitating away from a protective premise that free subscription listening hurts all-important "ownership" sales, typified first by records, then CDs, then iTunes. It's not giving users of free subscription services total control, for sure, but it is giving them greater user control, and it's using Spotify to do it.

"The challenge is to get the entire planet on a path to eventually subscribe and pay something for music," said Ken Parks, Spotify's chief content officer, in an interview with CNET. "But the first task is to get them on the conveyor belt to paid consumption."

"This is our vision, and the labels are on board," he said.

On Wednesday, Ek said that this idea -- moving the free Spotify service outside the home-- has been his dogging him for more than a year. So what took Spotify so long?

Two things: licensing and a little faith.

Listener habits shifted quickly from desktop to mobile. As smartphones proliferated and data plans enabled more streaming, most of that high-growth, Internet-connected listening migrated to the devices people use on the go -- even if they're using them in the home. Pandora, the biggest provider of Web-based music in the world, says 80 percent of listening hours occur on a connected device.

In other words, as the labels came around to letting music fans listen on their computers for free, listeners were already plugging their earbuds into their smartphones. The deals between Spotify and rights holders didn't anticipate that, and adjusting music licenses is the farthest thing from a simple fix.

Music copyright is one of the most fractured and complex licensing landscapes that exists. You don't need to just get performance rights, you need to get publisher rights too. You can't just get licenses in one country; you have to cobble together different deals in every country. And for every type of permission you need, in every country you want to be, there are multiple rights holders you need to bargain with.

That would slow any license renewal process down, but a key reason a free mobile product from Spotify didn't come sooner lies in Spotify's other big announcement Wednesday: It launched in 20 new countries. That expands the number of markets it operates by more than half. Since the new free mobile listening service is available everywhere Spotify is, that meant negotiating the unheard-of rights in 55 countries.

Given the complexity of music copyrights, it raises the prospect of a paralyzing conundrum: As Spotify works towards its goal of reaching every corner of the planet, every added markets adds more licensing tangles, enough to trap Spotify from getting anything new done fast enough to be relevant.

Spotify, of course, doesn't think so.

"This is something everybody in the world wants, so I think in some sense, while we increase complexity by trying to cover the globe, the more successful we are, the easier the conversation [with right holders] becomes," Parks said.

For years, the music business's clearest shot at big growth has been "access services" like Spotify. The proportion of recorded music revenue that comes from them has more than tripled in the last five years.

That should be music to the ears of an industry with weak overall growth, but the music industry's biggest problem isn't just growth. It's the fact that its total sales are a fraction of what they were a decade ago, the heyday of the compact disc, and there's nothing that has cannibalized CD sales more than digitization of music.

Enter Ek, asking rights holders to double down on giving Spotify users digital music without any fee.

Spotify declined to discuss its negotiations with rights holders, but a music industry source said that, as one would expect, the talks frequently centered on finding a model the labels and publishers were comfortable with that would give away some but not too much.

Sarah Tew/CNET

Having gone through the "shock, followed by grief, followed by anger, followed by acceptance" stemming from the difficult transformation of listening habits, labels are warming up to the 21st century way of selling music, said Daniel Danker, the chief product officer of Shazam.

"We're seeing the rebirth of the business model," he said. Labels are embracing new forms in much the same way as Internet tech companies have done, he said, and that means all participants may be able take better advantage of the business opportunities technology provides music .

Spotify had to wait for the music labels to get comfortable with the idea of free music on mobile devices, according to Forrester analyst James McQuivey. It's an offering that can be "doubly disruptive as it can replace both radio and paid digital downloads, and labels don't want to undermine either one," he said. "Will [consumers] use free as a springboard into paid? That's the hope, and it's one music labels are finally ready to test."

Make no mistake: To the labels and other rights holders, this is all about money. So long as they get paid, they don't care which service wins. The goal now is to figure out what model to make that happen most as technology transforms music listening.

Ek believes he already has the answer: "The more music you play, the more likely you'll pay," he said Wednesday. Now Spotify just needs to prove it.

 

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