Since launching in private beta in October, music service app Spotify has attracted glowing reviews, a strong following and is emerging as perhaps the likeliest of the unlimited music access platforms to succeed. Now it just needs to attract enough advertising or paying subscribers to make a business. CEO and co-founder Daniel Ek revealed Spotify’s clickthrough rates, confirmed mobile plans and told me the future of music is in the celestial jukebox...

—Can ads click in the downturn?: Having launched mainly with inventory from public agencies, now the big ad buyers are warming to Spotify. “We launched probably at the worst possible time in 70 years for advertising, so it’s taking some time for the market to know how to react, especially to new players; we were prepared for that. But we’ve been able to prove that we can give results, especially in a downturn; we now have A-list brands.” Already, Spotify is seeing average listening times of over an hour per user per day, Ek said.

—How many paying subscribers?: Spotify hit the million-user mark last week, but that’s across its ad-supported free option, £0.99-a-day service and £9.99 unlimited offering. Ek wouldn’t break it down: “The vast majority are in the free, ad supported model, but we’re positively surprised by the number of paid-for subscribers that we have. Rest assured, we haven’t really started doing the kind of features that we think will really drive adoption of becoming a paid user.” Ek hinted these features will include user-created radio stations, content like interviews and cross-platform interoperability. More details after the jump…

—Future plans: “One of the things we’re trying to do, which I haven’t really showed yet, is to enable Spotify as a platform. Currently people are exchanging music via their friends on MSN Messenger, on Facebook or other networks. What Spotify is trying to be, and we’ll show a lot more of this over the coming months, is - we want to be a platform play, where people can just share and don’t have to worry about being legal. That’s where we want to be and that’s ultimately what’s going to differentiate us from the rest.”

But is the free option, with a mere one audio ad every 20 minutes, annoying enough for users to upgrade? “We’ve also got display ads as well, so the number of ads is more than just three per hour. We have clickthrough rates that are very much better than the industry standard - for audio, it’s one percent; display is a bit lower but certain advertisers are getting 1.6 percent, even up to two percent. There are lots of different formats and we’re still experimenting.”

—When will Spotify turn a profit?: Though Ek, a former Stardoll CTO, and co-founder Martin Lorentzon are Swedish and the R&D team works from Stockholm, Spotify, which is fast adding staff to its team of 70, now counts London’s Soho as its corporate headquarters. “It makes sense commercially for us to be in London. Most of our users will be in the UK, I’m pretty much based here as well, a lot of the commercial team are here.” The proximity to London’s VC community can’t hurt - but, for now, it’s not necessary. “We have invested about €8 million of our own money so far, but we’ve also taken in venture capital from Northzone Ventures and Creandum. We don’t have any plans to raise money - I don’t expect us to be needing any money at all, actually. We expect, with the money we have, to be profitable this year, that’s our hope, though it’s impossible to say, especially in these market conditions.”

—Will Spotify go mobile, offer downloads?: Streaming to a desktop app is all very well but, without downloads that would let users sideload to mobiles, how far can Spotify really go? Ek: “It’s no secret that we’re looking at portability - that’s the most common feature that our users request from us. The thing you’ve got to keep in mind, the success of Spotify is based on its simplicity - we won’t do another mobile thing where it works (only) so-so - we ‘re going to do it where it’s simple, easy and just works. Until that, we’ve got plenty of things we want to fix in the PC and Mac versions. Nokia (NYSE: NOK) today is the world’s biggest manufacturer of MP3 players, but I doubt that it’s the world’s biggest MP3 device in terms of listeners - that shows what we think is the real opportunity.”

Not just over-the-air streaming, which could benefit from falling data prices, but Ek also will “definitely” let users buy downloads: “That doesn’t necessarily mean we will do downloads on our own; we might work with partners.” That is, some Spotify tracks already include affiliate retail links to Amazon (NSDQ: AMZN), 7Digital and iTunes Store - whilst this applies only to a small percentage of UK-facing tracks, Ek said this would be extended to the majority “in the next couple of weeks”. He hinted “there might be a more integrated offering” for 7Digital and Amazon, though iTunes customers would still be sent directly to Apple’s store.

—Can the ‘celestial jukebox’ save the music business? “Music is out there on P2P networks for free - we need to get users from an illegal environment, where the music business isn’t making any money, to a legal environment and use different methods to package that access in ways that people are prepared to pay for. I believe physical CDs will be here for the next five, 10 years ... I just think the majority of usage will be based on paid access rather than being paid on a one-off, per-track basis; ISPs will introduce all-you-can-east music subscriptions. Today, people are buying one CD a year, costing maybe £12 - if you look at ad-supported and add a couple of downloads to that, you’ve pretty much got that £12 figure from that. Combine it with music subscription, ticket sales or merchandise, you could probably have a music business that is way better than it used to be in terms of revenue. In the end, the music business will be a lot more complex because it won’t be about one revenue stream, it will be about a lot of different revenue streams.”

—When will you go international?: Right now, Spotify is only available in some European and Scandinavian countries. “US is definitely on our roadmap. But the key here, we don’t see ourselves as yet another website - for me, the most important thing is that I can actually show revenues. In the end, it’s about trust, we know that 99 percent of all music businesses, especially online, don’t generate any revenue. For this to be a long-term, viable business, we need to generate revenue for the artists and labels; that’s our key focus. Once we think that we have Europe working properly, we’ll definitely roll it out to more territories.” Year after year, we hear it’s still difficult to do pan-European licensing deals - is the music business still easy to deal with? “It took us almost two years to get the licenses - I pretty much lived on an aeroplane - but there’s been an attitude change toward digital services. The labels are much more positive now.”

—Who will prosper in the Pirate Bay case?: On the case in Ek’s native Sweden: “It doesn’t really matter whether Pirate Bay gets convicted or not. If they do, the service is based out of Russia now - the next case will be in Russia, by which time Pirate Bay will have moved to another country. If they don’t get convicted, that will be another signal that music is out there, available for free. I totally understand the music business desire to do something against illegal services. The thing you can do is not go after individual users but create a better service.”

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