Spotify, the UK-based online music provider, is developing a U.S. Internet radio service that would directly challenge Pandora, according to Bloomberg. Spotify’s current service functions like a music collection, allowing users to create playlists from specific albums and tracks. The new format would be similar to Pandora’s, which is cheaper to operate because it operates like radio and the royalty rates are lower. While Pandora users can’t choose specific songs, they have access to any artist whose music has been published.
The new service would start by year-end and be supported by advertising, said the story. The company has begun notifying some content partners of its plans.
“We have no announcements to share at this time,” Graham James, a spokesman for Spotify told Bloomberg.
Spotify, as of last November, has 10 million registered users worldwide, and 3 million paying subscribers. Pandora has 150 million registered users. Spotify has content deals with Sony Music, Universal Music, EMI Group and Warner Music Group. Under those deals, artists, record companies and publishers receive a cut of ad sales and subscriber fees.
An online radio offering would advance Spotify’s strategy of attracting users with free, ad-supported services who can be converted later into paying subscribers. About one-third of Spotify users have signed up for paid plans offering unlimited, commercial-free music on computers and mobile devices.
Spotify raised $100 million last year from venture capital investors including DST Global Solutions, Accel Partners and Kleiner Perkins Caufield & Byers, achieving a valuation of about $1 billion.