Spotify has much to do before U.S. launch

Spotify, the already much-buzzed about European music service, has seen speculation about an impending U.S. launch cranked up to such high levels that it's hard to separate fact from fiction.

On Tuesday, Billboard's Glenn Peoples landed an interview with Spotify CEO Daniel Ek and asked him when the popular service will finally land in the United States. This is what he said: "We're in the final stages of setting up. Yesterday we signed a data center contract, which is huge for us...So, we're gearing up for a U.S. launch. I can't say if it's in one month's time or two month's time, but it's looking pretty good."

Spotify managers have been more specific about a launch date in private conversations with music executives, according to multiple record industry sources. They say Spotify would like to announce a launch date at the South by Southwest conference on March 16, when Ek is scheduled to participate in a keynote interview.

That's six weeks away.

Fantastic, but there's just one thing. While Spotify may have signed a "huge" data-center contract, the London-based company has yet to acquire U.S. music rights from any of the four largest recording companies, according to numerous industry insiders. In addition, Spotify must also come to terms with a large number of music-publishing companies, the sources said.

One music exec quipped that if Spotify, which already missed its original 2009 U.S. launch date, hopes to roll out a site featuring music from all four major labels within two months--as Ek told Billboard--managers there "had better step on it."

Jim Butcher, a Spotify spokesman, said "Obviously, (there is) a huge amount of speculation--most of it false--flying around at the moment regarding our upcoming U.S. launch."

But some of the speculation floating around Spotify hasn't anything to do with the launch. One rumor that was buzzing about the music sector on Wednesday, which Butcher declined to comment on specifically, was that Spotify is for sale and recently discussed a possible acquisition with smartphone maker Research in Motion.

If true, why RIM would even consider acquiring a start-up music service, even one as noteworthy as Spotify, at a time when BlackBerry owners are clamoring for software and user-interface upgrades is anybody's guess. RIM representatives did not respond to interview requests.

That Spotify may be an acquisition target doesn't surprise anyone in the music sector, however. Not since Apple launched iTunes in 2001 have we seen a music start-up generate as much excitement from music fans. Spotify, which has developed peer-to-peer software that enables users to listen almost instantly to their music without any buffering delays, is supposed to be the most potent iTunes challenger that's come along in a while.

According to a story published in The Los Angeles Times on Tuesday, Spotify now has 7 million users from across six European countries, but most come from the United Kingdom and Scandinavia. Spotify has seen the kind of word-of-mouth viral love most companies can only dream of.

"Spotify is so good," Mark Zuckerberg, the Facebook founder, wrote on his Facebook page last August.

For that reason, and because no other U.S. service has managed to launch a significant challenge to Apple's iTunes music service, the record labels are eager to see what Spotify can do on this side of the Atlantic. Music industry sources say that they see little from preventing these deals from eventually happening but they just may not happen as fast as Ek would like.

If and when Spotify launches here, Ek must still prove Spotify's model can generate profits.

The company makes money from the sale of ads and subscriptions, although the word in the music industry is that Spotify has struggled to move users from the free, ad-supported service to the paid offering. The Times reported that about 250,000 people pay between $14 and $16 a month for the subscription service. That comes to about 3.5 percent of 7 million total users.

As for going it alone with an ad-supported model, TechCrunch reported last year that Ek favors offering a service that's free to the public. The labels are enormously skeptical of ad-supported services after seeing a bunch of them fail to make the model work.

For example, SpiralFrog and Ruckus were forced to close their doors last year, and Imeem sold for pennies on the dollar.

Perhaps, Spotify will wow U.S. audiences enough to entice them to pay. Or maybe Ek will follow Tim Westergren, founder of Pandora, and find a way to make the advertising model work for music.

After 10 years, Pandora recently posted its first profitable quarter. For Spotify's sake, it better not take the company as long.