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Google Aims to Subsidize Stateside Launch of Spotify, With Some Ad Garnish on Top…


We’ve heard that a compromise has been reached. Spotify will be free for users, but a “very limited” number of people will be able to use it.

Much more interesting, though, are the conversations with Google that we’ve confirmed. The two companies sketched out a plan where Spotify’s excellent Android application would be build into the 2.1 version of Android and would launch in the U.S. with the Google Nexus One phone on January 5. The application – which is available in Europe and allows for offline syncing of songs – would give Google a much needed competitive answer to Apple’s iTunes. The Android could realistically be seen as a media consumption device, like the iPhone, with things like Spotify built into it.

Google wanted Spotify badly enough that they were willing to cover the label costs for every user of $3 – $4 per month. Spotify would add advertising on top of it, as they do with the free version in Europe, to make additional revenue. Without Google paying those label fees there was no way Spotify could handle the costs of the user flow that 2.1 would provide. Currently, European users must pay for Spotify Premium to use the mobile versions of the service.

I went to my music industry sources to see what was up. What I learned from them is that Spotify started speaking to the largest recording companies about acquiring licensing to deliver music in the U.S. a long time ago but hasn’t reached a deal with at least three major labels.

TechCrunch also reported that negotiations between Spotify and the labels have faltered because Spotify wants to offer a free music service in the U.S., presumably supported by advertising, and the labels are balking.

The recording industry has seen how tough it is to generate profits from selling ads and has largely given up on the ad-supported business model. The list of failed ad-supported music services is long and includes SpiralFrog, Imeem, and Ruckus.

Look for more Spotify rumors to circulate around the Web. The site’s user experience has generated great word of mouth overseas and that has touched off lots of anticipation in the U.S.
But here’s the reality about the company: Spotify managers haven’t demonstrated that they know anything more about turning users into dollars than their American counterparts. Whether Spotify will make a splash here or whether it can even produce profits at home have yet to be determined.