According to this post on TechCrunch, startups like Spotify that depend on premium licensed content have a fundamental problem: If they succeed, the content owners will jack up their licensing fees. But I think there is another problem, that affects us users in a big way, and that will essentially turn Spotify (or any other startup that happens to be even more succesful) into a monopoly.
The thing is this. In the old days, the carrier to distribute music to the consumer, i.e. the CD (or the LP), was standardised. We had one CD player, that could play all CDs, irrespective of the record company that our favourite artist happened to be signed up with. Things worked this way because used to buy CDs one at a time, released by different record companies.
We have tried to do similar stuff on-line with MP3 and the like. But with subscription-based services like Spotify thinks don’t work the same way. When I subscribe to Spotify, I get a Spotify player that I need to play the music I like. If I also want to listen to music available through Google Music, I need a different player. It’s like needing several CD players, one for each record company that happens to release CDs that you like. Clearly undesirable: you are not going to switch player whenever you want to listen to a different song.
Of course, we could develop a meta-player, that will collect all players into one, with a unified user interface (like eBuddy did for instant messaging). But the problem is even more fundamental than that: if you have paid 10 euros a month for a Spotify subscription, will you pay 10 euros again for another music service (that happens to have a few more songs that Spotify doesn’t have)? I think this is quite unlikely.
Therefore, a service like Spotify quickly converges to a monopoly. It will essentially control the on-line music distribution channel (like the record companies controlled that channel in the physical world). In other words: Spotify will become like a record company, with the added disadvantage that there is no other record company that will compete with it.
This spells trouble for fringe music acts, that already had a tough time earning money in the physical world. A monopoly like Spotify can impose arbitrarily bad licensing agreements on them. If they don’t accept, the only way to reach their audience is setting up their own website and build an audience this way on their own. Sure, they will reach their true fans. But anyone with a broad music taste and interested in a few dozen acts will quickly give up…