Spotify Ltd., the music-streaming service, is adding a free radio feature in the U.S. that will compete with Pandora Media Inc. (P:US) for listeners on mobile devices.
Spotify’s ad-supported radio function is available today through Apple Inc. (AAPL:US)’s AppStore for use on iPads and iPhones, London-based Spotify said in a statement. Paying users of Spotify’s streaming service on the devices will be able to listen to radio without the ads, from marketers including Chevrolet, Heineken and Taco Bell.
Similar to Pandora, Spotify will allow users to create a radio “station” by selecting artists, genres or playlists. The company is betting that free, ad-supported radio will attract users who can be converted later into paying subscribers.
“We feel like the radio experience of just hitting play, leaning back and not controlling exactly what plays is core to a great music experience,” Charlie Hellman, vice president of product at Spotify, said in an interview.
In April, Bloomberg News reported the company planned a Web-radio service to challenge Pandora.
The change will make Spotify, which allows users to create playlists from specific albums and tracks, more like Pandora, a radio-like service that is cheaper to operate because royalty rates are lower and set by Congress.
“We’re taking advantage of statutory rates in the U.S.,” Hellman said. “We’re collaborating with our label partners on how to bring this great experience to all users globally in the coming months. That’s the goal.”
Pandora, based in Oakland, California, dropped 0.2 percent to $11.45 at the close in New York, and has climbed 14 percent so far this year.
Spotify has content deals with Sony Corp. (6758)’s Sony Music, Vivendi SA (VIV)’s Universal Music, EMI Group (EMIS) and Warner Music Group. Under those agreements, artists, record companies and publishers receive a cut of ad sales and subscriber fees.
The company has previously offered a more limited “artist radio” function on its software for desktop computers that isn’t available on mobile devices.
Pandora doesn’t have agreements with record companies. Without legislation in other countries, Pandora has been unable to expand outside of the U.S.
Still, Pandora’s audience is larger. Closely held Spotify, founded in 2006, said in November it had 10 million registered users worldwide, and 3 million paying subscribers. At the end of May, Pandora, started in 2005, listed 53.3 million listeners within the last 30 days. The company said last month it had more than 150 million total registered users.
On free Spotify radio, users will hear two to three minutes of commercials each hour, similar to the amount of ads on the desktop version of the streaming service, Hellman said. They will be limited to skipping about six songs every 60 minutes, he said.
Subscribers to the $9.99 a month plan won’t hear commercials and will be able to skip as many songs as they like.
About one-third of Spotify’s music-streaming users have signed up for paid plans offering unlimited, commercial-free music on computers and mobile devices.
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