Business Matters: Flaws in the Argument That Spotify Will 'Never' Be Profitable
Business Matters: Flaws in the Argument That Spotify Will 'Never' Be Profitable

The speculation is over. Spotify is finally available in the U.S.

Now what?

First and foremost, the U.S. market gets a true test of consumers' appetite for subscription services. Although the U.S. market has long had Rhapody - which just passed 800,000 subscribers - as well as promising upstarts like Rdio and MOG, the feeling throughout the industry is that Spotify will be a game-changer. U.S. consumers get a well-oiled product that already has 1.6 million subscribers - about as many as all U.S. subscription services - and over 10 million registered users in seven European markets. Although it doesn't totally reinvent the wheel, it's very good at what it does: Spotify is faster and easier to use than other services and makes sharing simple.

With new competition will come greater innovation and a shaking out in the subscription marketplace. Just as Apple helps Microsoft and Google helps Facebook, Spotify will lead to better competition in subscription music services. Some may not survive, but the overall market will improve as a result.

And if all goes well, Spotify could even play a role in lowering piracy in the U.S. In addition to paid levels of service, the company offers a free web streaming service. Rights holders naturally want paying subscribers and so were hesitant to allow the free, on-demand service in this country. But a free service - even with limitations - will provide a greater number of consumers with an alternative to piracy.

Hey, it could happen. Sweden was a hotbed of piracy and home to The Pirate Bay. Spotify launched in early 2009, around the same time the country's legislators passed an anti-piracy law. After two years of weak gains, Sweden's digital music sales rose 119% in 2009 and 73% in 2010, according to the IFPI. Johan Lagerlof, CEO of Sweden-based X5 Music Group, attributes that improvement to Spotify as well as a corresponding cultural shift on piracy. "A few years ago we saw a lot of Pirate Bay t-shirts. Now it's not cool to be a Pirate Bay fan," he said.

Piracy will certainly stand less of a chance if Spotify continues to flood the market with invitations for the free service. On Thursday Chevrolet was offering away Free accounts to the first 150,000 people who register at the Facebook page for its Sonic automobile -- Paste Magazine quickly ran through its allotment of 500. And Klout, a web site that tracks social media users' influence, went through its 100,000 Spotify Free invites by mid-afternoon. The demand was so great Klout's system was temporarily overwhelmed, according to a rep for the company.

The involvement of other top brands will help push Spotify into the mainstream. The company nailed down Coca-Cola and Sprite, Chevrolet, Motorola, Reebok, Sonos and The Daily as "exclusive launch partners" who will launch Spotify campaigns in the coming months.

Finally, the U.S. market gets a company that's different from everybody else. It's a company that remained focused after long delays, one that is said to treat rights holders with the respect they deserve and one that's admired for its engineering talent.

Perhaps most importantly, Spotify is a company that built a product from a consumer point of view rather than a rights holder point of view. The market has seen too many services - especially the free ones - built as if engineered by a group of record label lawyers.

"The difference in Spotify, why I think it has more chance of success than its predecessors in that market, is in its DNA," says Charles Caldas, CEO of indie rights body Merlin. "Spotify is a one service that has worked incredibly hard to build its offering around what its consumers actually want to listen to."

It has a dogged corporate mindset, too. Ken Parks, Spotify's chief content officer and manager of operations in the U.S., told the company was determined not to take no for an answer. "We had this single-minded ambition to bring the Spotify model to the U.S. I think all the ingredients that make great companies are here at Spotify."

In a Facebook post Thursday, Napster co-founder and Spotify shareholder Sean Parker wrote Thursday the service marks "the beginning of a return to growth by the recorded music business."

Indeed, the company will ultimately be measured on its ability to put the industry on an upward trajectory. That's a lot to put on a company's shoulders, but Spotify seems comfortable assuming that burden.