Digital Media

For the last year or so, it's become clear that the economics of ad-supported streaming music services are not good for their creators or investors. As CNET's Greg Sandoval reported last week, the acquisition of streaming service Imeem by MySpace Music for pennies on the dollar is the latest bad news for the sector, following the bankruptcies of SpiralFrog and Ruckus and the similar fire sale of iLike to MySpace.

Offering your music via Spotify might help you fill up your piggybank.

Who's left? In the U.S., we've still got LaLa, which has the blessing of the major labels and seems to be enjoying dramatically increased traffic (as measured by Alexa) thanks to its recent deal with Google, and Grooveshark, which has kept a low profile. Neither of these services is purely ad-supported--particularly LaLa, which hopes to charge customers for downloads and "permanent" streams once they surpass a quota of 50 free streams a month.

But the service most often cited as the future of online music is Spotify. It's only available in Europe right now, but it seems like everybody who tries it loves it, myself included. Spotify offers a premium service as well, which offers portability and higher-quality streams, but the free service offers unlimited ad-supported streams, and that's the service that has everybody so excited.

But there's one small problem with the Spotify-as-savior story: it doesn't pay artists very well. According to this story in a Swedish publication, as translated and explained by the TorrentFreak blog, Spotify delivered more than one million streams of Lady Gaga's hit single "Poker Face" over five months. From these streams, she reportedly earned about 1,150 Swedish kronor--about $167--from the Swedish agency responsible for paying royalties. That's not even enough to cover the cost of four tickets to her upcoming concert in San Francisco.

If this story's true, why would any artist agree to make songs available on Spotify? With these kinds of payouts, it looks like music business expert Donald Passman is right--advertising is never going to support an online music service.

I have a love song to write. I don't know yet whether it will be a tragic ballad or an exuberant ode to the triumph of happiness. But it's a love song for sure: I have fallen for Spotify, the latest buzzworthy "free music" service. After months of trying to find a great way to find and listen to music online, I believe I have met my match.

No, Spotify technically isn't available in the U.S. just yet, though the U.K.-based company hopes to bring the software stateside by the end of the year. My acceptance of an invite code sent by a generous friend therefore may or may not have been in gross violation of some international laws or statutes or regulations. But that's OK. Spotify, we can have an illicit romance for now.

You see, I needed this in my life. I had been thinking about "music discovery" of late. Last week, at the tail end of a trip in which I had been covering Google's splashy Los Angeles debut of its music search service in partnership with MySpace and Lala, I was sitting in the lobby of the Standard Hotel in West Hollywood, a shameless hipster magnet designed in the manner of tacky Southwest-desert motels and which features a constant soundtrack of semi-edgy music picks from '90s-era Britpop to lo-fi and LCD Soundsystem remixes. As a parade of attractive, Sunset Strip rocker types drifted to the check-in desk, I was sitting next to a cactus, intermittently holding up my iPhone to a speaker, using audio-recognition app Shazam to find out exactly what was playing.

Considering the cooler-than-thou crowd, I probably looked awfully silly. But Shazam has been my preferred method of music discovery because I just haven't found anything else I really like. Queuing up a Pandora station makes for great party music, but I've never been enthralled by its recommendations for me. Music blog aggregator Hype Machine has very well-done charts to track the songs that are getting blogged and tweeted about the most, but they can be a little bit predictable once you've already listened to the latest mashup of Kanye West and MGMT. I use Last.fm, owned by CNET News parent company CBS, to tabulate listening-history charts, but have never found myself hooked by its recommendations or radio stations. (Sorry, bosses.)

Social music and discovery services are a mess, frankly. Some of them have terrible user interfaces, and others are slowly becoming the victim of poorly conceived business models (many of which relied too heavily on advertising strategies that have yet to bear fruit) and ill-fated licensing agreements with the major labels. Still others, in striving to get a leg up on competitors, veered into editorial curation--exclusive album-listening debuts, promotions and tie-ins, and the like. That can make for a whole lot of clutter.

Then along came my Spotify invite, and everything changed. The service makes no attempts on the surface to be an "influencer" in and of itself, instead just offering access to full-length streams of just about any song. That's daunting at first. When you first load up Spotify, you're greeted with basic top-music charts that are notably uninspiring (Black Eyed Peas? Kings of Leon?) and searches don't bring you anything other than, well, what you searched for. Social-networking features like Facebook and Twitter sharing are sparse and well-hidden. If you don't know where to look, it can be a little bit dull.

Instead, the "discovery" process is left up to third parties. Create a playlist on Spotify, and you can assign it an HTML address so that when people click on it (assuming they have Spotify accounts) the playlist will open right up. A popular U.K. music blog called Drowned in Sound has a feature called "Spotifridays," where a selection of popular music from that week is packaged into a Spotify playlist, eliminating the need to click around through various Web browsers and streaming-music embeds. A friend sent me a link to Drowned in Sound's playlist of top songs of the first half of 2009. I was set for the next 7.6 hours.

Then, this happened: My Amazon MP3 bill started escalating as my "shopping cart" filled up with songs from bands I'd never heard of before, like the Veils, Let's Wrestle, and the Big Pink. The no-brainer Spotify platform, and how easy it is for anyone to use it to create playlists and share them in a way that doesn't involve a single wacky embeddable widget, was making me buy music.

But Spotify's long-term prospects are still hazy. Its dual business models, monthly subscriptions (for ad-free accounts and access to its iPhone app) and advertising for free accounts, have historically failed to hold up in the face of the micropayments-based iTunes. CEO Daniel Ek has even acknowledged that profits aren't flooding in yet and accused the labels of inflating licensing fees. The specter of SpiralFrog, another hyped free-music service that went down in flames earlier this year, is still in recent memory.

It's also unclear as to how the Spotify service, currently available in Sweden, Norway, the U.K., Finland, France, and Spain, will fare in the U.S. when it arrives here. Google's new music search feature, which is right now restricted to the States, may give a big advantage to competitors MySpace Music and Lala as search traffic is directed there. There's also the potential money drain: Government regulations over licensing fees last year. Digital music, you could say, is an industry with a lot of emotional baggage.

Generally, when there are glaring roadblocks in a new relationship, it's a red flag that you shouldn't get too attached. But this is one where I'm willing to fight to keep it alive. I hear there's a chance I'll be shut out of Spotify entirely in a few weeks unless I tweak my IP address somehow to fool the service into thinking I'm in one of its approved countries. Or unless I cough up the money for a premium subscription.

And I'd consider that. Money can't buy me love, but it could buy me Spotify. And right now they're sort of one and the same.

Stardust is sprinkled all over music service Spotify.

Steve Jobs built the most successful music service by dealing from a position of strength.

(Credit: CNET)

In recent months, users, reviewers, and even Facebook founder Mark Zuckerberg have heaped praise on the European service, which has yet to launch in the United States. But while Spotify may be a nifty service, it may also be a textbook example of how popularity doesn't mean profits.

CEO Daniel Ek appeared to acknowledge that his company has a long way to go before hitting profitability in a candid note he posted to the site on Thursday. Writing on the anniversary of the site's launch, Ek signaled that the service may be struggling to generate revenues by becoming the latest CEO to complain about music-licensing fees.

Ek began his post by saying he envisions a future where Spotify helps the music industry pocket $50 billion annually and lures people away from illegal file-sharing sites by the truckload. But before this happens, Ek said, the labels must help him help them.

"The new business model in music," Ek argued, "is a mix between ad-supported music, downloads, subscriptions, merchandising, and ticketing where, the user comes first...It can't happen if the industry continues to enforce the per-play fees it has tried so hard to hold on to. The new model is about figuring out how to increase the revenue per user between the different models--not squeeze as much as possible out of every single transaction."

Blaming the labels for an underperforming business model isn't new. Everybody from SpiralFrog to Imeem has claimed that overinflated licensing fees are the cause of their struggles. No doubt, the world would be a better place for consumers, if the labels gave their music away for free. The reality is that they aren't going to do that.

Label chiefs have a number in their heads that they think their songs are worth, and it's higher than Ek's valuation. All the moves of late by the record industry indicate that while they will try to help these sites, to a point, the labels appear determined to hold the line on their overall pricing strategy.

Here are some of things I've learned about the big record companies over the past year:

The labels don't think the failure of ad-supported Web sites will spell their doom. Not by a long shot. Many label honchos were skeptical of the ad-supported model from the start. The performances of these companies haven't raised the confidence level much. Ruckus and SpiralFrog are closed, Imeem barely survived a financial crisis, and no one in the sector has reported profits. In other interviews, Ek has acknowledged that less than 10 percent of the site's users actually fork over any money.

None of the services have shown that their sites appeal very much to advertisers (people listening to music don't look at ads). There's also evidence that instead of promoting song sales, ad-supported sites cannibalize them.

To hear Michael Robertson tell it, the founder of MP3.com says the top labels don't care if Spotify or the other services fail because there are always more "dummies" willing to pay big bucks to partner with the labels. One goes down, another will leap to take its place.

Here's the direction where music industry chiefs appear headed:

First, they are trying to get back control of distribution, and that means plugging the holes.

The industry knows that file sharing isn't going away, but the record companies appear to believe that they can discourage mainstream music fans from pirating music. To do that, the Recording Industry Association of America continues to lobby bandwidth providers to establish a graduated response program, which may include cutting off service to the worst offenders. The RIAA, the trade group representing the four largest music labels, hasn't been very successful so far. Not a single Internet service provider has publicly acknowledged working with the music industry on graduated response.

The next step for the labels is to focus on what works. My music industry sources say the labels, with their shrinking revenues, are backing away from risky digital models. Selling downloads is the only proven way to make money off the Web. The problem for the labels is that downloads are synonymous with iTunes, and that means they are forced to share too much control with Apple. The labels would like to see a world where lots of outlets sell songs online and the industry isn't overly dependent on a single store.

The business model that the labels really want to see succeed is subscriptions. Enticing people to pay a monthly fee to hear all-you-can-eat music wouldn't offer the same fat margins that CDs once did, but it has the potential to deliver consistent revenue and volume. So far, the public has by and large rejected paying monthly fees because they know that as soon as they stop paying, they lose their music.

As for Spotify, Ek wrote that "overnight success takes a long time," and he supported his statement by noting that iTunes "missed its revenue targets in its first year by 30 percent."

What Ek failed to mention was that in its first year--at a time when far fewer people were buying music online--iTunes sold 70 million songs and managed to turn a small profit. Apple forced the music industry to yield to its wishes by creating a wildly popular and self-sustaining business, not by pleading for mercy.

"It would obviously be wrong for me to compare Apple's success with iTunes to Spotify."

On this, Ek is right.

According to a report in Forbes, phone giant Nokia has delayed the U.S. launch of its Comes With Music service until 2010.

Nokia first announced Comes With Music back in December 2007, then revealed more details almost a year later as the service launched in the U.K. Under the plan, cell phone buyers pay some extra money up front and, in exchange, get the right to download as many songs as they want from Nokia's music store for one year. Those downloads don't expire when the user's cell phone contract ends, but they are copy-protected, limiting usage to the phone and one computer that's registered with the service. Still, it seemed like a reasonable deal if Nokia could convince cellular carriers to subsidize some of the cost, and early reviews from the U.K. were mostly positive. I even suggested that Microsoft follow Nokia's lead whenever it launches its next-generation consumer-focused smartphones.

I thought the launch of the Nokia 5800 Xpress Music phone in the U.S. would be accompanied by the launch of the service in the U.S. as well, but it wasn't. So what's the problem? My guess is that Nokia's facing the same licensing economics that are limiting free download service Spotify to the European market only. Nokia may also be waiting for a more fundamental transition: the company has said that it's considering removing digital rights management limits from future iterations of the service, allowing the downloads to be played and shared between an unlimited number of devices. (In fact, the Comes With Music DRM scheme was bypassed almost immediately, proving for the umpteenth time that the concept is flawed.) It's only a matter of time: three years ago, nobody envisioned the content owners abandoning DRM on single-song downloads. Now, there's not a per-song download service that still uses it.

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It looks like music-playing software, such as iTunes, but it's also a kind of digital recorder.

Just press record and Chilirec grabs music from up to 100 Internet radio stations simultaneously, based on your music preferences, for free and legally.

Chilirec CEO Carina Dreifeldt

(Credit: Chilirec)

"We have had our law firm verify in detail that this is a recorder which is legally ok," Chilirec CEO and co-founder Carina Dreifeldt told CNET News.

Chilirec is yet another digital music venture from Sweden, where a debate on piracy and copyright issues seems to have inspired alternatives such as Spotify and Tunerec, all offering listening for free.

Tapping into lots of Internet radio stations, Chilirec software records dozens of songs every minute, adding up to thousands of songs on your hard drive in a single day. The legality of this and other similar software such as Ripcast and StationRipper is based on the right to record music and make a few copies for personal use.

"The hitch is that the individual must perform the actual recording," explained Dreifeldt.

This is the reason why Chilirec now launches a software that runs on users' PCs. In October 2007, an earlier test version was launched in a cloud-based model, with a patent filed for the technology.

In the cloud-based model, each user had his or her own disk space on Chilirec's servers and managed the recordings via the Internet with the PC serving as a kind of remote control. The service soon became very popular.

But record companies considered this a service in which Chilirec was making the recordings and thus Chilirec was making copyright-protected material available illegally, since licenses weren't paid.

A similar case regards the U.S. cable provider Cablevision's network-based DVR.

"We could either fight and go to court, or transform the product from a cloud-based model to a personal recorder," Dreifeldt said.

As Chilirec didn't want to go up against the recording industry, the cloud-based model was abandoned at the end of 2008, at least for now. Dreifeldt expressed some disappointment over the industry's standpoint.

"We wanted to cooperate with the record industry. The basic idea was to have a place where you could listen to the world's music, and (then) if you wanted to download a song with better quality and without radio jingles," you could, she said. That would give the record industry more music-selling opportunities.

The new software, a second beta version, was initially released only in Swedish, and the full Web site at Chilirec.com can currently only be reached from Sweden. The software is free to use until the end of August. But eventually, Chilirec plans to offer both a free advertising-based version and a premium version that would cost about one euro a month.

CNET News gave the software a try and loaded our hard drive with a couple thousand songs in a few hours, even after narrowing the genre down to jazz.

Recorded songs are stored as MP3s and quality varies with different radio stations. Sometimes a song starts off with a radio jingle or with the end of another song.

Users can choose from a long list of radio stations and, in addition to genres, can narrow recordings to categories like "most played on radio in the U.K."

It's also possible to copy various top lists on the Internet as playlists, and to explore music already stored on the hard drive.

Chilirec is Java based and runs in the browser. Initially only Windows is supported, but Dreifeldt told Cnet News that versions for Mac and Linux will be coming later.

Free, on-demand streaming music is a rising tide: since the start of 2009, I've covered relatively new services like Spotify and Just Hear It, and there are plenty of established players like MySpace Music, Imeem, and Grooveshark.

Listen to Michael Jackson's music on Michael Jackson's official Web site. What a novel idea!

(Credit: Sony Music, Michael Jackson)

Instead of trying to stop the tide, Sony Music has wisely embraced it: starting today, the company will introduce streaming music players on the Web sites of its most popular artists, including popsters like Kelly Clarkson, John Legend, and Jacko himself. It makes perfect business sense: instead of letting some third party like Imeem sell advertisements against high-demand music, Sony can sell or display its own ads.

Of course, they couldn't make it too easy--finding the audio on Michael Jackson's site took a few clicks, including one that forced me to identify my country, and the songs were embedded in the Sony-specific MyPlay player, which is an interesting piece of technology but only lets you create playlists with songs from other artists with MyPlay players. More generally, I wonder if it's too late for these label-specific initiatives--I'm sure plenty of hardcore Britney fans have her Web site bookmarked, but most music listeners probably prefer to use services that let you compile lists from multiple artists on multiple labels.

Sony is also adding lyrics to these artists' sites, provided by the company's own Gracenote subsidiary. Excellent move. I can't believe it's taken this long, given the lack of decent lyrics sites out there. In fact, I still don't understand the reluctance to publish lyrics online--what are people going to steal? What money is the artist or copyright owner losing? Kudos for Sony for taking a baby step toward ending this silliness.

Move over, Pandora. There's a new music service in town--well, in some towns anyway.

TorrentFreak has an in-depth write-up of a new music streaming service called Spotify, which shows an awful lot of promise--so much so that the music piracy-focused blog sees it as a viable alternative to downloading pirated songs for free.

Spotify is a lean, downloadable application that lets users stream music instantly from its library--a library built with the blessing of EMI Music, Sony BMG, Universal Music Group, Warner Music Group, and some smaller record labels. That, of course, begs the question: how does it make money? Spotify offers two ways to use its service, a free service sponsored by ads, and a paid subscription service.

Once downloaded, the service allows users to search its music catalog by artist, genre, or title, and stream the tracks on-demand any number of times.

One of the cooler features is the ability to create and share playlists (a la the now-defunct Muxtape). And the service recently added the ability to scrobble the songs you listen to through Spotify on Last.fm.

That's the good news. Now for the bad news: It isn't officially available in the U.S. yet (though a Digg commenter did provide a way for people to try it out Stateside, at least temporarily). Right now it can be accessed in the UK, Germany, France, Italy, Spain, Finland, Norway, and Sweden. And the company plans to roll out its service to new markets in 2009, according to its Web site.

Judging from comments on TorrentFreak, Digg, and TechCrunch, the service seems to have impressed people who have tried it with its speed, usability, and depth of songs (though it's taken dings for sound quality, frequency of commercials, and lack of portability). I haven't had a chance to try it out yet, but as a music fan who got pretty fed up with the repetition of songs on Pandora's artist radio stations over the holiday break, I think this looks very promising.

As for TorrentFreak's claims that Spotify is so good that it might stop piracy in its tracks, I'm skeptical. This is a streaming service, so the songs are only available to you when you're online and connected to it. It doesn't work with portable music devices, so you can't take the songs with you on the subway or to the gym (or, for me, drop it into the iPod dock hooked up to my stereo). And since the songs aren't downloaded to your hard drive, they're not in your grand collection along with the rest of your music. Spotify might have a decent-size library, but it doesn't have all the songs I've ripped from vinyl, or the latest album from a favorite local band that happens not to have signed with a label yet. Going back and forth between a local library and a centralized library like Spotify would be annoying.

Having everything in one place and being able to take it with you wherever you go is the goal for any music fan. And until Spotify offers that ability, I don't see it magically wiping out music piracy altogether. But it does appear that this group is on the right track, from the perspective of music fans, bands, and music labels.

Has anyone spent a good deal of time with the service yet? If so, what say you? Is Spotify the wave of the future, or another Web 2.0 dud in an already cluttered arena?

Disclosure: Last.fm is a part of CBS Interactive, which also publishes CNET News.