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Europe's hot digital-music service washed up on our shore this morning. Spotify, an on-demand offering with more (social) hooks than a Black Eyed Peas single, is making itself available to stateside listeners on an invitation-only basis today.
For Spotify, getting here wasn't easy. Negotiations with the major labels have been going on for two years, and it wasn't until earlier this week that the last of the bigs -- Warner Music Group (NYSE: WMG ) -- signed on the dotted line.
There is no shortage of fledgling aural smorgasbords in this country already. Rhapsody and Best Buy's (NYSE: BBY ) Napster lead the way, but even Rhapsody conceded earlier this year that there were just 1.5 million paying subscribers across all of its platforms. Spotify, on the other hand, claims that 1.6 million of it 10 million registered users in Europe are on board as premium subscribers.
That's an impressive ratio for a "freemium" model. Pandora Media (NYSE: P ) has far more users in its music-discovery service, but only a sliver pay for enhanced access.
What makes Spotify so different? Breadth, for starters, is a differentiator -- though good luck finding someone who will split hairs between the roughly 12 million tracks available through Rhapsody, Napster, and MOG and the 15 million songs on Spotify. The service also hopes to set itself apart through its sheer simplicity, something that has been a sticking point with the labels that fear that if a platform is too convenient, the need to purchase new music will dry up.
However, the real secret sauce may simply be the social element of building and sharing playlists.
The New York Times describes some of the usage restrictions that the company recently had to introduce in Europe on its free ad-supported PC listening plan to keep labels happy and its model crawling toward profitability. Non-paying users can't hear any single song more than five times a month. They're also restricted to 20 hours a month of streaming during the first six months, and a mere 10 hours a month after that. Those restrictions will also apply here.
Why not create multiple accounts or a simply start from scratch every six months? Well, that's where Spotify's social magic kicks in. After all of the time spent on building up playlists, adding your own music into the mix, and networking with like-minded music fans, going back to a clean slate is easier said than done. Would you want to keep opening a new Facebook account every six months?
Napster, Rhapsody, and even Pandora haven't excelled at making music social. Even Apple's (Nasdaq: AAPL ) Ping hasn't been the game changer that the iTunes giant must have originally fathomed. Can Spotify be the one to break on through to the other side?
It won't be easy. Spotify's free plan is too limiting. Users can pay $5 a month for ad-free access or fork over $10 a month for the account that offers high-quality streams across portable devices beyond the computer.
Even paying $10 a month won't solve the need for perpetual online connectivity, something that Sirius XM Radio (Nasdaq: SIRI ) solves for just a few bucks more with its coast-to-coast satellite coverage.
Spotify had better hope that its social ways are sticky and that folks value customization over letting someone else do the musical vetting, because those are the only things that will make the two years of waiting worth it.
Is Spotify a threat to Pandora or Sirius XM? Share your thoughts in the comments box below.