With 2010 come and gone, Spotify has yet to fulfill their promise of a U.S. launch. The Swedish music streaming service has been trying to hammer out a deal to have a U.S.-based service, but they've been stuck in a long round of negotiations over the usual music industry culprit ... licensing.
Spotify faces a major hurdle in convincing the major recording labels that they can generate enough money to satisfy the demands of licensing fees. Spotify is based on the 'freemium' model -- they have both a free and paid service. About ten percent of their audience signs up for the premium service, and the rest of the 90% (supported by advertising) doesn't generate enough cash to make it worthwhile. You get a marginal business that barely squeaks by, and major labels would like to continue to mine their copyrights to make money.
Spotify (like Pandora) would have sign up a huuuge amount of people just to tread water, making it difficult for Spotify to commit. The Spotify owners obviously (and smartly) don't seem to want to hand over a big chunk of ownership of Spotify to the major labels to make up the difference, so we get a situation of a dog chasing its tail.
“The US divisions of the major record labels, [Universal Music, EMI Music, Warner Music and Sony Music] do not feel comfortable with the freemium model and have demanded extremely high cash advances, which has caused Spotify to stop and think about whether it can afford the move to the US and indeed whether it is worth it….The labels in the US are worried about too many people becoming heavy users of the free component Spotify will offer, which is why they want high minimum guarantees. Spotify is now looking for additional funding to facilitate the labels’ demands,” a senior music executive told The Telegraph.