With a nudge from Facebook, streaming music lowers barriers
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San Francisco (CNN) -- When Spotify debuted in the U.S. two months ago, the streaming-music service was starkly different from its competitors.
For one, Spotify was the only clearly legal service that let people listen to every song in its digital catalog on demand for free, without making them jump through hoops by signing up for some kind of time-limited trial run.
It's well designed; integrates with iTunes, the most popular jukebox from Apple; lets you blast songs to friends via Facebook; and did we mention that it's free? To quote Facebook CEO Mark Zuckerberg in a 2009 status update during Spotify's Europe-only days, "Spotify is so good."
So, naturally, when Zuckerberg first took steps to design a music section for Facebook, he went to Spotify CEO Daniel Ek and Sean Parker, the former Facebook adviser who now sits on Spotify's board of directors. But ultimately, rather than reaching an exclusive deal with Spotify, Facebook chose to partner with more than a dozen companies, including other music services such as MOG, Rdio and Rhapsody.
These deals may have another, indirect consequence: bringing more free music to more Internet users on multiple sites, not just Facebook.
MOG and Rdio announced just hours apart last week in advance of Facebook's conference that they were adding more robust free music offerings. Rhapsody, which has been in the game the longest, will offer an extended trial of 30 days to Facebook users. (In other words, to just about everyone.)
MOG's free service grants users a sort of gas tank that can be filled by completing tasks on the service, such as creating playlists or referring friends to sign up. The viral-marketing program was inspired by another cloud service called Dropbox, and MOG will also have advertisements to offset some of the costs of offering free music, MOG CEO David Hyman said in an interview on Thursday.
"This massively lowers the bar for what you need to do to get free music," Hyman said.
Rdio's free service, which is coming "in the very near future," will provide access to its 11 million tracks without ads, a spokesman said. He declined to elaborate on how this will make financial sense for the company.
What all of these services have in common is that they'll work with the new music hub that Facebook unveiled on Thursday. This means they likely will give users the option to automatically alert Facebook about every song they listen to, and then let the social networking giant create reports about their listening habits.
Facebook is attempting to bring this same concept to news, video, books and other applications. Whether people actually want to let Facebook log every news article they read is uncertain, to say the least. When it comes to video, giants like Google's YouTube and Vimeo are missing from Facebook's new platform; Hulu's offering appears unchanged; and Netflix is launching Facebook integration everywhere except for in the U.S. for now.
In other words, Facebook's stab at hosting music looks the strongest, despite lacking deals with giants iTunes or Pandora, neither of which are on-demand song-streaming programs. Zuckerberg introduced his new music product by saying he wanted to "rethink the whole music industry."
Bringing personal recommendations to some 750 million Facebook users introduces a new variable to digital music. People may look to music reports on their friends' Facebook profiles -- "Fred is listening to the new OK Go album" -- for suggestions instead of the radio or stores.
Considering the major shift in recent months from walled online music subscriptions to extensive free listening, and the comments from executives at the streaming companies, everyone appears open to the idea.
While torturous record-label negotiations were once like a trip to the dentist, "it gets a little bit easier dealing with them every day," Hyman said. Spokesmen for two of the major labels didn't immediately respond to a request seeking comment.
Rhapsody, which has been around for nearly a decade, is taking a relatively cautious approach with its 30-day trial. Digital music has never seen a scenario quite like the one now, with so many options for free music, Rhapsody President Jon Irwin said in an interview. The few that have tried something similar, like iMeem, iLike and Lala, "have come and gone," he said. These services have to pay performance royalties each time someone starts playing a song, which can add up very quickly.
"At some point, the economics have to balance," Irwin said. "Somebody has to pay for that."
MOG put at least a year of investigation into the likely costs associated with its free service, Hyman said. Engineers plan to continue tweaking as more people sign on through Facebook, he said. This "Facebook experiment," as some in the music industry are calling it, may still prove to be less costly than other vehicles of marketing and advertising, executives said.
"One can say it's an experiment, but we've certainly done a ton of research," Hyman said. "It's still cheaper than me buying search engine marketing, display advertising or traditional marketing."
Spotify appears unfazed by the mounting competition. The service recently passed 2 million paying subscribers, Ek, the CEO, said this week. People who use Facebook are more likely to sign up for Spotify's paid service, executives said on Thursday, citing its own research.
"Ours is the best free service there is," Kenneth Parks, Spotify's content chief, said in an interview.
But that free offering won't stay golden forever. Around the end of the year, Spotify will impose more limits on U.S. users, in line with per-month listening restrictions and ads that Spotify users in Europe already see.
Thanks to recent sizable venture-capital investments, Spotify certainly doesn't appear to be hurting for cash.
After Facebook's announcement on Thursday, Parker and Spotify hosted an extravagant party in San Francisco for conference attendees, with tequila bottles stationed at tables and concerts by such artists as Killers and Jane's Addiction. Everything, of course, was free.
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