According to Bloomberg, Spotify is set to create its own new service based on rival Pandora’s successful model. Spotify is already working to strike advertising deals in preparation for the launch of its own streaming radio service, which is expected to be up and running by year’s end.
Spotify’s current service allows users to create individual libraries of music and stream selections from them at will from mobile devices or PCs. Pandora’s model allows users to create any number of stations, each based upon a different artist, genre or track. Pandora then streams songs its system identifies as having similar qualities. For example, a user who created a Black Sabbath station would likely hear songs by Ozzy Osbourne and Nazareth, as well as songs by Black Sabbath and similar artists.
As the user listens, he or she has the opportunity to suggest other artists or songs for inclusion on the playlist and to vote Pandora’s offerings down or up, further personalizing the station’s offerings and influencing future selections. Although users can choose the sort of music they hear, they cannot choose which song plays when or even be certain any one song will be played at all.
The appeal of Pandora’s model is that it fits the legal requirements for a radio station. The company pays only the royalty fees mandated by the Federal Communications Commission (FCC) per song and is allowed to air any published musical work. This is true even if the work’s owners have declined to allow it to be streamed elsewhere. Spotify, on the other hand, must deal with each label separately and attempt to negotiate the terms under which it can play titles.
Although Spotify has a radio app, it doesn’t do everything Pandora does, and it doesn’t allow the company to pay FCC- mandated royalty fees. Offering a radio service would provide users with an expanded catalog of music while potentially lowering overhead for the company.
Currently, Spotify relies on advertisers to keep its service free while simultaneously offering an advertisement-free subscription service that costs users $9.99 a month. The concept has recently gone mainstream, with Spotify striking an advertising deal with Coca-Cola and converting approximately 20 percent of its users into subscribers.