August 28, 2009 12:39 am

Apple approves Spotify’s rival music service

Apple on Thursday approved a fast-growing rival’s request to sell access to music on the iPhone, a surprising embrace of competition that could have resulted from increased scrutiny of its clout.

Apple confirmed that Spotify, a digital music subscription company that was founded in Sweden, could soon offer phone owners a program through Apple’s online App Store. Spotify offers a free version with commercials and a premium service without them, and the iPhone version will be of the second variety, people familiar with it said.

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The App may also set the stage for Spotify’s entrance into the lucrative US market, since Apple’s approval covers all countries. In Sweden, the labels make more money from their deal with Spotify than they do from their cut of sales over Apple’s iTunes store, which is the largest music retailer in many places.

Spotify is still raising money for a US debut, which would require separate deals with the labels. Spotify said it would elaborate on its plans when the App became available.

Spotify was started by Daniel Ek, formerly chief technology officer at Stardoll, a social network aimed at teenage girls, and Martin Lorentzon, a founder of TradeDoubler, the online marketing group. Although it took the big music labels 18 months to agree to let Spotify use their catalogues, some in the music industry see Spotify as a strong alternative to file-sharing networks and unauthorised directories such as the Pirate Bay.

Li Ka-shing, the Chinese billionaire, recently invested in Spotify as part of a fundraising, which the Financial Times understands values the company at $250m. Wellington Partners, a UK venture capital firm, also participated in the round. Mr Li’s investment was through his charitable foundation, which also invested in Facebook.

The decision comes amid building attention to Apple’s practices in Washington and Silicon Valley. The Federal Communications Commission this summer demanded to know why Apple blocked an application from Google, called Google Voice, that would have allowed users to receive calls to various numbers in a single place.

Tim Bajarin, technology consultant of Creative Strategies, said he did not think Spotify would badly hurt iTunes sales, especially without a US launch. But he added: “There’s no question that if Spotify is approved, it’s going to be watched closely to see what overall impact it has on iTunes.”

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