GrindEFX

Following its rapid success in Europe, music streaming site Spotify is set to launch in the U.S. later this Summer. For those who have never heard of Spotify, it’s a program much similar to iTunes, except instead of buying music, you stream it – for free.

Since launching in February of this year, the Swedish company have acquired over 2 million users in the U.K. and 4 million in Europe. Its catalog contains over 5 million songs from the the four major record labels (Universal, Sony, EMI, Warner) – which represent roughly 80% of all commercial music – and over 20,000 independent labels.

Being a free service, it pulls in revenue from advertising much like the traditional radio stations do. They also offer an ad-free premium service for £9.99 ($16.40) a month which allows users to stream audio at 320 kb/s, as opposed to the 160 kb/s that free users receive.

The same success isn’t guaranteed in the U.S. though, and launching the service in the States is no walk in the park. Spotify may have signed deals with record labels for Europe, but as most artists license their rights to one record company for the North American market and to another for Europe and the rest of the world, it’s going to have to re-negotiate all deals before it can tackle the Americans.

One area where I feel Spotify should be focusing a lot of attention is in mobile applications. There is already a beta version on Google’s Android, and one is expected soon for the iPhone.

When Spotify does launch in the U.S., I believe it will be very popular, but Dan Cryan, a digital media analyst with Screen Digest in London, raises some interesting points about its business model.

“A lot depends on the deals Spotify is able to sign in the U.S. with the record companies,” he told Forbes. “Spotify pays labels on a per-track basis, and funds that using a mix of advertising and subscriptions. But at the moment it’s only playing one ad every four songs, and our research suggests that most of the ad slots aren’t sold.”

“Spotify has had an explosion in popularity,” Cryan added, “which means that its costs have increased dramatically. But there are still insufficient compelling reasons given to users to sign up for the premium subscriptions.”