Page last updated at 14:23 GMT, Monday, 25 January 2010

Spotify boss Daniel Ek sets out future plans

Spotify's founders Martin Lorentzon (left) and Daniel Ek
Spotify was founded by Martin Lorentzon (left) and Daniel Ek

Music streaming service Spotify has taken off in the past 12 months to become a hit with fans - seven million of whom have signed up in six European countries - and be touted by some as the future of the music industry.

Of those seven million, about 95% are using the free service, which is largely funded by ads playing between songs.

Some 250,000 have signed up to the premium service, which costs £9.99 a month in the UK, and lets fans listen on mobile devices, with no ads and better sound quality.

Spotify founder Daniel Ek claims this is "the first time the number of subscribers has grown this dramatically, probably in the history of subscription".

But is it enough to make the business work and pay an reasonable rate to artists, some of whom have publicly complained about the amount they receive? And when will the long-awaited US launch happen?

Read the interview with Daniel Ek below.

Spotify launched in Sweden in October 2008 and the UK last February

Aside from paying royalties, what else are you doing for artists and how does it add up for them?

In the old days, you made a record, marketed that record and sold it. But that was pretty much it. Today, it's not about just selling records. You have to look at loads of different business models. It's ad supported, subscription, selling tracks or albums, merchandise, ticketing - all of that will matter. So for today's musicians to be really successful, you must master not only recording a great track but your own brand.

We want to give artists and labels tools so that they can figure out great ways of interacting with their fans. So if someone's listening to a track and living in Liverpool, for instance, we could advertise that there's actually a show in the next two months and here's a good way of buying tickets. Obviously there are many ways as our targeting becomes better and we learn more about consumers.

Some people think the labels do well out of Spotify [the majors own a part of it], but the artists don't and the royalties are actually quite small. There was a story that Lady GaGa got $167 for one million plays in Sweden. What do you say to that?

The only thing I can say is that they are not accurate numbers based on the usage that we're seeing now. I don't know if those numbers were early numbers but my guess is so. It might even have been within the first two months where we didn't have a lot of ad revenue or subscriber revenue.

The truth is that the amount of money an artist makes per stream is increasing because we're getting more and more people to become subscribers, our advertising revenue is growing month-on-month. So the revenue that comes in is greater now than obviously it was 12 months ago. And that affects the payout we make to artists too.

Some artists' music has been removed. Why is that?

There are always artist-specific issues and that varies from case to case. With some, the rights don't exist any more or they switch record label to a label that we don't have. It might be that the artist in question renegotiated their contract and it doesn't include digital. There's a magnitude of different things. It was the same with iTunes when that launched.

Spotify's Daniel Ek at Midem
I'm pretty sure that once we start paying out a lot of money for artists, the money for Spotify itself will come

What ratio do you need between premium subscribers and free users to be profitable?

For us, it's not really about being a profitable business. For us, we want it to work for artists and labels out there, and composers. The question is rather about the amount of revenue that we can bring in totally.

It's early days but with the subscriber growth and the fact that our advertising business is in the tens of millions of euros each year, that shows that this is a viable business. Now it's only about growing and growing and growing so that we can change the way the industry is going now, which is down, to an upward trend.

If it's not about being a profitable business, though, there would be no business would there?

Of course we want to be a profitable business but the truth is that why digital music so far hasn't been successful, is because none of the services, with the exception of iTunes, is yet big enough to support all the artists around the world. We view that as the bigger challenge. And I'm pretty sure that once we start paying out a lot of money for artists, the money for Spotify itself will come.

Why do UK users now need an invitation - are you victims of your own success and do you have to keep a hold on user numbers?

The most important reason is that we want to have a great consumer experience. We've had a phenomenal growth but at the same time streaming music over the internet at such vast numbers is not an easy task from an engineering standpoint.

We've been surprised by the amount of playlists that people have been creating and sharing, and that in combination with phones that are streaming music, we want to make sure the people that are paying for the service get a great experience.

The most important thing is to do the US launch right - we've learned a lot from launching in Europe

Do you see the invite-only situation being temporary or could it be permanent?

I don't think it will be a permanent solution. We want to offer Spotify to every single person that lives in the countries we're available in. But it has given us time to figure out the model when it comes to paid vs free. Our end goal is definitely to allow anyone to stream music.

What's the current situation with the US launch?

We're in the final stages of preparing with the US. We're doing the rounds, we're speaking to artists, we want to make sure that people understand us.

Is there a greater reluctance among the US music industry to fully embrace you because they're worried that you may eat into sales?

With the decline in the music industry, more of the cannibalisation issues are starting to disappear. With the success we've had in Europe, we're really getting people excited. But we're talking about the world's biggest music market.

And in Europe we have the benefit of having collecting societies [national bodies that collect and distribute royalties to music publishers and songwriters], which in most cases mean licensing is fairly straightforward. But in the US you have to deal with several thousand publishers. So there are a lot more people to talk to, and a lot more opinions as well.

And when Apple introduced iTunes to the market, people were generally quite sceptical as well. This is a model where we all need to get our heads around it.

Are you still hoping to launch in the US in the early part of this year?

Yeah, I definitely hope so. The most important thing is to do the US launch right. We've learned a lot from launching in Europe and we're making sure we have advertisers and partners in place to get off to a running start.

And if we don't feel that we're in that position then we'll prolong it by a month or two or three until we get to that. But right now it looks really good and I'm personally spending more and more time in the US.

What kind of developments will we see in the service in the next 12 months, and how will you attract more subscribers?

One thing we've been looking at is the number of devices we support so you can consume Spotify on more devices. It's all about choice. And we want to make it easier to share music with their friends and organise their music.

What are your biggest challenges in the next 12 months?

The biggest challenges are around the music industry. We've got people that love the product and we're getting tremendous support from everyone in the industry, but it's also something that's new and there are things that we could not foresee.

We have rights issues, where it might be that two different guys give us the same track in the same territory, so we have lots of things to sort out with that.

This time last year, Spotify was starting to take off - this year, what's your favourite new digital music service?

For me it's about services that engage artists and fans. I'm excited about what the ticketing guys like Fanshake and others are doing, and guys like Soundcloud , who are really engaging with the producers, which enables better music to come out because people are collaborating.

Daniel Ek was speaking to BBC News music reporter Ian Youngs.

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