The four major record labels are warming up to Spotify, the popular European streaming music service trying to launch in the United States.
Spotify is still without signed contracts to license music from any top label and there are still numerous points to be negotiated, but the company has never been closer to finalizing deals than now, said multiple sources with knowledge of the talks.
One of the ways that Spotify has stirred the labels is by offering big money advances, the sources said. The amount could not be verified. Spokespeople for Spotify and the labels either were not immediately available for comment or declined to comment.
Spotify managers have promised to launch in the U.S. before the end of the year and up until the past week music executives were very skeptical about the company's chances of meeting that deadline. Spotify has already blown two prior launch deadlines.
Spotify's inability to reach licensing agreements with the labels can be traced to several factors. Some of the labels have lost faith in business models built on giving songs away to consumers free of charge. For some music execs, too many start-ups have attempted this and failed to continue licensing them. The list includes SpiralFrog, Ruckus, and Imeem.
There are also questions about Spotify's ability to turn users of the service's free offering into paying customers. In addition to the free service, Spotify charges for premium service. The rate the company converts free users into paying customers is in the single digits, insiders said. The labels want something closer to 15 percent.
There is little doubt among label honchos about Spotify's ability to attract a large following. The site's user experience has received glowing reviews, even from the likes of Facebook founder and CEO Mark Zuckerberg. But if the company fails at generating revenue from those users, there is a potential for Spotify to cut into sales from proven revenue producers, such as Apple and Amazon.
So, execs at the major record companies want enough upfront money to mitigate some of of the risks they believe are involved in licensing Spotify. What has impressed some at the labels is the willingness of Spotify's leadership to pay the advances and bet on its own ability to create a winner in the United States.