Spotify To Pull the Plug on Free Unlimited Music

Spotify may be trying save the record industry with better deals for labels, but the savings are about to end for the many of the on-demand music streaming service’s 1.4 million subscribers.

According to a report from The Verge, Spotify users who have free accounts in the U.S. will be limited to ten hours of streaming per month, with five plays per song.  To get unlimited music they’ll have to sign up for one of the site’s premium plans, which cost $4.99 and $9.99 per month.

The company had implemented these same changes in the UK back in April.  The blog post received so much traffic – and so many comments from users, whose responses ranged from supportive to outraged – that the comments had to be disabled.

In October reported that even though Spotify’s total revenue from subscription and ad sales had grown to the equivalent of $99.1 million in 2010 from $17.7 million in 2009, the company still showed a net loss of $41.5 million, due in large part to the costs of licensing the music.

This past Friday, Fast Company spoke with record label executives who explained that the royalties generated from the site can’t support the industry unless Spotify  increases the percentage of paid subscribers.  Until that happens, the record companies will have to charge high licensing fees that could affect Spotify’s profits.

It looks like Spotify is getting more realistic about its business model and hoping that it has provided a good enough service that most users will be willing to go along with the changes.

A similar thing happened to Netflix in July, when the movie streaming service had to raise its prices from $10 a month to $16 to cover the costs of mailing antiquated DVDs.  While many people were upset, others just shrugged and said they liked Netflix well enough to shell out the extra $6.  At any rate, Quikster, the separate service Netflix launched for DVD rentals, was shut down almost immediately because users didn’t like having to sign up for two separate plans.

With Spotify, the users who have freebie accounts will still have access to the equivalent of 200 tracks or 20 albums per month. As long as the subscription process is convenient and there are no commercials involved, it might be worth the extra money, especially for people who like to listen to songs offline with their phones.

Spotify’s freemium model as it stood was too good to last forever, but for those of us who grew up buying songs by the album and listening to the radio with lots of commercials, it’s not the worst thing to happen to music.