Free Streaming May Soon Be History: Spotify Delays U.S. Launch, MySpace May Move To Pay Model

2008 was the year of free streaming music. When MySpace Music entered the fray a little over a year ago, it seemed like the music labels had finally relented, and were willing to experiment with free streaming music to users. The future looked bright.

2009 is the year of reckoning. The European launch of Spotify, which offers users free streaming music on demand, was an affirmation of the trend. Soon Spotify would launch in the U.S., too, the company said.

Things are changing.

Spotify is now saying that they must delay their U.S. launch. They don’t want to launch here with a paid-only model, and the big labels are signaling that they won’t have it. From the NYTimes last month, quoting Sony Music: “We like Spotify as our partner in Europe, but we would like them to move more toward a paid subscription environment.”

And that isn’t the only bad news. MySpace Music is “almost certainly” going to severely restrict free streaming to users, say multiple sources, and move to a paid model. “They are spending $20 million/month on streaming royalties, and that just isn’t sustainable,” said one source with knowledge of MySpace’s relationships with the labels. Other sources have said that MySpace’s royalty payments are much lower, but don’t deny that the service is a cash hole.

MySpace won’t comment on this story, but they have a deadline to all this. The Google search deal is up next year, and $300 million/year in revenue will evaporate. Changes need to happen soon. The last payment of $75 million is due on June 20, 2010.