Music Labels Make Life Tough for Spotify

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"The idea of a streaming service, like Netflix for music -- I'm totally not against it, Carney told NME. "It's just we won't put all of our music on it until there are enough subscribers for it to make sense." But, "I honestly don't want to see Sean Parker succeed in anything. I imagine if Spotify becomes something that people are willing to pay for, then I'm sure iTunes will just create their own service, and they're actually fair to artists."

Maybe. But aside from Carney's personal hatreds, there's the question of whether Spotify, and similar services like Rhapsody and Mog, actually make sense as businesses. Michael Robertson, a veteran of the digital-music industry as founder of MP3.com, says that thanks to the demands of the major record labels, Spotify can "never be popular," as he wrote at GigaOM in December.

There, Robertson presented a litany of those demands, which essentially come down to: However much money you make, we will get most of it. The labels, still wary from the deals they struck with iTunes that give Apple what the labels believe is way too much, aren't about to make the same mistake again.

Spotify is by all accounts a great service (I haven't signed up for it yet; I like owning my music, though I suppose I should give it a try), and it's growing fast -- about 200 percent a year, revenue-wise. But revenue doesn't mean much when nearly all of it is taken away by your suppliers.

Online music might simply be a terrible business, thanks to the labels' policies (which, it can be argued, are justified given how digital distribution has upended the economics of the industry.) On Monday, Robertson told the rumor/gossip site Business Insider that Spotify could never grow so big so as to have power over the labels. There are few barriers to entry, so once it got to a certain size, some smaller outfit, flush with venture capital as Spotify is now, will just come along and sign on with the labels' onerous terms and the whole thing will start over again.

"If you're a label, and companies like Spotify are willing to pay whatever crazy number you throw out there, you'd be an idiot if you started discounting the price," he said. And he noted that this has happened several times before: "Go look at the archive from three years ago, six years ago, nine years ago, you will find the iLikes, MySpace Music, Napster. They all paid up front and did the same deals, and they've all gone to heaven."

Dan Mitchell has written for Fortune, the New York Times, Slate, Wired, National Public Radio, the Chicago Tribune, and many others.

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