Spotify: Please pay

Is Spotify, the streaming service which the music industry is praying will wean its customers off illegal file-sharing, now struggling to make its business model work?

That's one interpretation of this morning's announcement from the firm that it is now offering two new ways of getting access to its library of more than eight million tracks.

The story so far is that Spotify launched a free ad-supported service which proved so immensely popular - but, it appears, so unprofitable that the company had to close the doors to new arrivals, apart from those invited by existing users.

It then launched a £9.99 a month premium ad-free service, and kept adding new bells and whistles, such as smartphone apps and the capacity to store tracks offline.

In March Spotify said it had 320,000 premium users, and the company told me this morning that the number was now significantly higher, but that may not be enough to cover the costs of servicing all the free users and paying licensing fees to artists.

Now the firm is launching Spotify Unlimited and Spotify Open. Unlimited will give users an ad-free service for a cut-price £4.99 a month but only on their computers and without those bells and whistles that Premium offers.

And Open is a way of inviting in all of those people queuing at the free entrance without giving them as much as the early arrivals - they get to listen for just 20 hours a month, and have to put up with adverts too.

So, with a carrot and a stick, the company is trying to increase its overall audience, while persuading more of them to be paying customers.

Spotify insists that these new services are a response to a big surge in demand since a recent upgrade which allowed users to load in all of the music they owned on their computers and then share their playlists through Facebook.

That innovation made Spotify look like a real alternative to Apple's iTunes. But, with Apple rumoured to be planning its own subscription service and Spotify still not managing to enter the American market, the clock is ticking for the company and its Swedish founder Daniel Ek.

Mr Ek has worked tirelessly for the past three years, travelling the world to persuade reluctant music industry executives to do licensing deals, and winning them round to a vision of a world where consumers would pay for unlimited access to music, rather than buying individual tracks.

He has been the leading apostle for the freemium model, where you get something for nothing then graduate into a paying customer. But now the pressure is on - and Spotify needs far more of its many fans to start shelling out.

Source: http://www.bbc.co.uk