Why Spotify might die

We love Spotify. More than we love some of our distant relatives in fact. Which is why it saddens us to say that the future looks bleak for Britain's

We love Spotify. More than we love some of our distant relatives in fact. Which is why it saddens us to say that the future looks bleak for Britain's favourite streaming service.

Spotify boss Daniel Ek told The Register that his service has "five to six times" as much traffic as any other streaming music service but the problem is not enough of those users are willing to pay for its premium service.

Take up for the premium service in May is thought to have risen to just 17,000, less than 1% of the total user base. The figure was a rise of just 2,700 over the previous month. Meanwhile the number of users taking up the free option doubled.

Spotify has to pay hefty amounts to license the music it streams. With a downturn in advertising due to the global recession (many of the site's ads now seem to come from small firms and charities) and a lack of premium subscribers those costs will start to bite.

Rather than pay any form of bulk licensing deal, Spotify pays labels a royalty per song and it seems its after more money to support that.  Both The Guardian and The Times have reported that the streaming service is seeking more investment. Times Online suggested that it may need up to £30 million.

While there are rumours that the major record labels already have a stake in the firm, without significant growth in advertising or premium subscriber base, it’s difficult to see how the money will keep on flowing.

Perhaps the site will find a way to make the premium account more appealing. At £10 per month, or £100 a year, simply getting access to some social features, a download service and exclusive albums just isn't enough.

The site's salvation could come from an idea posited by polymath and gadget guru Stephen Fry at last night's iTunes festival talk. He suggested that Spotify could arrange a deal similar to the one the BBC, ITV and Channel 4 have with the Performing Rights Society.

Under the buyout deal, the broadcasters pay a yearly lump sum for the right to use any and all music released in the UK as much as they like. A deal like that would secure Spotify's future but it's difficult to see the beleaguered music industry agreeing to it.

Free might be the most appealing business model to music fans but musicians and labels still want and need to be paid. If Spotify doesn't find a way to pay for make its licenses pay (and fast), its days are undoubtedly numbered.