Spotify is forced to halve its free music allowance

The music streaming website Spotify, which offers listeners unlimited free access, is to restrict the amount of songs that users can play without paying. From 1 May the service, which has six million users in Britain and Europe, will reduce the amount of free listening available from 20 hours a month to 10.

Non-subscribers, who use Spotify's free, advert-supported option, will only be able to listen to a particular track a maximum of five times.

The move is designed to encourage more people to pay for subscriptions. At present, a £9.99-a-month fee allows Spotify users to play an unlimited amount of music, without adverts, on a computer or mobile phone.

Spotify, which launched in 2008 as an attractive legal alternative to digital piracy, has come under pressure from major record companies to scale back its free offering. Artists and their labels receive a royalty payment for every track streamed but the income is a fraction of revenue that used to be generated by physical sales of CDs.

Spotify hopes to challenge Apple's iTunes by launching in the US as a subscription-only service. But the company is still negotiating deals with two of the biggest record companies, Universal and Warner Music, for permission to license their tracks.

Some Spotify users expressed disappointment that the era of unlimited free, yet legal, music was apparently over. One posted on the company's website: "So long Spotify. It was nice knowing you. Guess I'll go back to pirating music again then."

In a blog addressed to customers, Spotify's co-founder Daniel Ek said yesterday: "It is vital that we continue offering an on-demand free service to you and millions more like you, but to make that possible we have to put some limits in place going forward." Mr Ek stressed that the changes would affect only the heaviest users of the service, as it would still be possible to listen to about 200 songs or 20 albums for free each month.

The Swedish entrepreneur, 28, introduced Spotify as an invitation-only service in 2008 before responding to overwhelming demand by opening the site to all music fans. The company attracted blue-chip investors, including the Chinese billionaire Li Ka-shing.

Spotify's UK business lost £16.6m in 2009 – a sign that the free model is ultimately unsustainable, according to record company insiders. The revenue generated from advertising is less than that from monthly subscriptions.

The company has persuaded one million users to become paid subscribers and is gambling that yesterday's announcement will encourage more to sign up for the £9.99 package than are driven to illegal sites. "This means we can continue making Spotify available to all in the long term," Mr Ek added.

However, Spotify's chief content officer, Ken Parks, said the company was committed to keeping a free component to the service. He said: "Spotifyhas captured a youth demographic that has been very hard for the music industry to monetise, but their perception of the value of music completely changes as they get invested in the experience.

"So the 'free' experience in fact pays big dividends. That is why it is so vital we continue to make the free service available."

New Spotify customers will be given six months' grace in which they can access 20 hours of free music, before being moved to the revised model.