Spotify under pressure over US launch

Spotify is considering launching its digital jukebox service in the US without having signed up all four large record labels, as pressure builds that could push the European start-up to seek fresh funds.

The company’s auditors, Ernst & Young, warned in accounts for 2009, filed only last week, of a “material uncertainty which may cast significant doubt about the group’s ability to continue as a going concern”.

Losses at the company outstripped sales last year. Spotify said in the accounts that it had “ambitious growth plans and further funding is currently being negotiated . . . to support these growth plans”. It says it is “confident” it can secure new investment.

Spotify’s board sees a successful US launch as critical to the company’s success. Daniel Ek, its chief executive and co-founder, had originally pledged to bring the “unlimited” music service to the US last year, then publicly set a deadline for the end of this year. The Swedish company, whose main operating business is based in London, has quickly become one of Europe’s most successful technology start-ups.

It has attracted 10m users – 500,000 of them paying at least £4.99/€4.99 ($7.96) a month for extra features – across seven countries since launching in late 2008.

However, some music labels and publishers are concerned about the free part of its service, which is supported by advertising.

People familiar with the negotiations said that after more than a year’s delay, Spotify was considering launching in the US with music from just two or three of the four big labels – Universal, Sony, Warner and EMI – a move that could diminish its appeal.

Spotify said it was still in discussions with all four.

It pays music labels and publishers a royalty for every track played by its users, whether on its free or subscription services.

Its accounts show that it recorded losses of £16.6m in the UK last year, on revenues of £11.3m, of which £4.5m came from advertising and £6.8m from subscriptions.

Li Ka-Shing, the Hong Kong telecoms billionaire, Wellington Partners and Northzone Ventures invested about €30m in Spotify in August 2009 at a €200m valuation. Founders Fund made a smaller investment in February.

Pär-Jörgen Pärson, a director of Spotify, said he was “very happy with how the company is performing”.

“We are very confident the company has all the capabilities and the financial resources it needs to execute on its plan,” he said. “The US is the largest music market. It’s logical for the company to address the US market.”

Spotify said: “2009 saw us focus on establishing a new and innovative music service and bringing it to millions of people across Europe. The groundwork laid in our launch year has been crucial to the significant achievements made in 2010.”

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