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Will Spotify have gaps in its U.S. 'digital jukebox?'

Mark Milian
Spotify CEO Daniel Ek is confident he can bring the music-streaming service to the U.S., despite challenges.
Spotify CEO Daniel Ek is confident he can bring the music-streaming service to the U.S., despite challenges.
  • Spotify continues to face hurdles with its oft-delayed U.S. launch
  • The European music streaming service lets users listen to full songs on demand for free
  • Spotify may launch the service in the U.S. without all major labels signed on

(CNN) -- Spotify, a music streaming service that's making waves in Europe, continues to face hurdles with its oft-delayed U.S. launch.

Parties on both sides of the negotiations have expressed varying degrees of confidence that an agreement would be reached soon.

Spotify CEO Daniel Ek told a source close to the company a few weeks ago that all the deals he needed for a U.S. debut were signed, according to an e-mail seen by CNN.

But Ek, the 27-year-old Swedish co-founder, has been overly enthusiastic about promising release dates before.

The company said in late 2009 that its U.S. version would be available in early 2010. In an interview in March, Ek said that complexities had delayed the launch, but it would be rolling before the end of this year.

Ek said in that same interview that talks with music labels were on track and that he had secured deals with music aggregators to secure rights to the songs. But signing deals with publishers proved to be a major undertaking, he said.

"We just have to sort out all the publishing, which is a huge task, especially in the U.S.," Ek said then. "You have to strike deals with almost 5,000 publishers -- maybe more."

But even now, not all the record label deals are locked up.

Sony Music Entertainment, one of the four major labels whose talent includes Christina Aguilera and Bruce Springsteen, hasn't signed a contract. Executives there still seem skeptical that the service can convert free users to paying subscribers, a music industry executive told CNN.

Spotify has attracted 10 million people in seven European countries to its free streaming music service. Each customer can listen to full songs -- up to 20 hours per month, supported by ads -- and create playlists from a massive library of albums using software similar to iTunes.

Unlike internet "radio stations" like Pandora, Spotify is a sort of "digital jukebox" that lets users search for songs and play them on demand.

Another 750,000-plus users pay about 10 euros per month for the ability to download songs for listening later without an internet connection and for access to Spotify's cell phone apps.

Subscription services are old hat in the U.S. Napster and Rhapsody have struggled to gain critical mass, and more competitors sprung up this year, including MOG and Rdio.

But Spotify is unique because it hooks people with its free offerings.

"We really believe in our model," Ek said in an onstage chat this week at the D: Dive into Mobile conference in San Francisco. "We would not just launch a subscription model, because we don't think that's going to work."

Record companies seem more willing to experiment in Europe than in the U.S. Warner Music Group announced last month that it had renewed its contract with Spotify in Europe, amid widening financial losses for the label.

Still, Warner Music CEO Edgar Bronfman expressed hesitations.

"The question has always been how to ensure that free-to-consumer models which are generally supported by advertising and offered to attract consumers are effective at converting consumers to paid subscriptions," he said in a recent conference call with analysts.

Spotify, like the music industry it purports to save, has posted financial losses, although that's not out of the ordinary for such a young startup.

Perhaps the involvement of file-sharing tycoons keeps Spotify from winning many fans among record executives still reeling from a tumultuous decade for the music industry. Ek is the former CEO of uTorrent, and Napster co-founder Sean Parker is a Spotify investor and proponent.

"The U.S. is the world's largest music market," Ek said. "This just takes time."

With his self-imposed end-of-the-year deadline just weeks away, Ek appeared less eager to predict timing or to elaborate on discussions at the conference Tuesday.

"I wouldn't commit to a specific date," Ek said, citing "complex business deals" that are delaying the process. "I'm here today," he added, implying that his presence in America means he's serious about doing business here.

Through a spokesman, Ek declined to be interviewed this week, citing a tight travel schedule.

Onstage at the conference, Ek did provide additional details of what the U.S. service might look like.

Spotify's premium version will cost $10 a month, he said -- a fee that's in line with other music subscription services. Customers should be able to share songs and playlists whether they're using the desktop software or apps on Android or iPhone, he said. Facebook and Twitter integration is also a given.

Kenneth Parks, the director of Spotify's U.S. operations, declined to speak in depth to CNN about negotiations. Parks, a longtime adviser to the company, pointed out that the talks with European music labels took "a long time" and said he is happy with Spotify's progression now.

"We're working hard on getting the service to the U.S. as soon as possible," Parks said on the phone from New York on Thursday. "We want to preserve the core of the [user] experience."

Spotify's service may look different from its European one when it finally does land stateside, sources say. Parks described the "core" as an attractive free experience that would encourage users to subscribe.

What remains to be seen is whether Ek will introduce Spotify stateside despite not securing every major label, which could mean the service launches here with gaps in its music catalog. The Financial Times reported that Spotify is considering launching the service here without all four major labels.

Besides Sony, the other three major labels are Universal Music Group, EMI and Warner Music Group.


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