Go to Pandora, and you can listen to streaming music to your heart’s content.  You can do the same with Last.fm.  Blip.fm will work also.  And then you can load up Spotify and … oh, wait, that only works in Europe so far.

While we fully understand that Pandora is not available outside of the United States, the point of this is that Spotify wants to launch in the U.S., it’s even in closed beta testing right now, but yet the record labels are having trouble reaching an agreement with the company over the royalty rates.  The royalties will be paid by a combination of users of the free version clicking on the ads, and premium users that will pay a monthly fee for the ability to listen to music while offline, and also be able sync playsits with mobile devices.

spotifyAccording to the Financial Times (registration required), Spotify’s launch has been delayed in the United States due to continuing negotiations with the record labels here.  Record executives told the newspaper that they needed to see how the conversion rate would work for free customers, with a target of one-in-ten customers converting over to paid status.

Adding fuel to the fire, the Los Angeles Times correctly points out that this revenue model has not worked in the past for other services such as Napster and Rhapsody.  In this case, however, Spotify has a track record in Europe of using this revenue model, and the company is currently taking the music streaming business by storm across the entire continent.

The reason this whole thing doesn’t ring true for me is the record companies have approved royalty deals with companies such as Pandora that do not have any sort of premium subscription plan (the company has said it may do one eventually), and are supported strictly by ad revenue.  Why can the record companies reach those deals, but yet drag their collective feet when it comes to a service that will at least get some subscribers?

Never mind the fact that Spotify’s ad system delivers ads based on the mood of the user based on the average beats per minute of the music they are listening to.  This leads to a higher than usual click-thru rate of six to seven percent on ads.

Things don’t just add up as to why the music industry has had no problem with other services that are completely free, but yet this one is throwing them for a loop.  If Spotify is truly good as people say, and a friend of mine who is in the private beta tells me it truly is, it will be worth the wait for the end users, but lets just hope the record labels don’t somehow mess up the deal for us.