Rhodri Marsden: Can Spotify take on iTunes – and win?

Whoah," said a friend of mine on Twitter last week, an indication that whatever was to follow had a reasonable chance of being interesting. "Bogshed are on Spotify," he continued.

If true, this would be startling news; a band once celebrated by John Peel but only remembered by a few dozen people would be incredibly unlikely to pop up on the preeminent music-streaming service. In fact, my friend had merely upgraded his Spotify software, which now displayed all the songs by Bogshed that were already sitting on his computer, as well as Spotify's own library. But "whoah" was still an appropriate reaction; with this development, Spotify are taking on iTunes, Apple's market-leading music player and online store. After all, with your own and much of the world's music accessible through Spotify, why take two metaphorical bottles into the shower now that one can do it all?

Spotify's founder, Daniel Ek, described the service last week as becoming "your only music source". You can usually ignore CEOs when they say this kind of thing, but Spotify has undoubtedly reached some kind of critical mass. A couple of months back I visited a decidedly non-geeky family whose music set-up now consists of their PC running Spotify with a trailing cable hooked up to a hi-fi. "No point in CDs any more, is there?" said the father, gesturing vaguely at a dusty shelf of discs. But Spotify's goal lies beyond the obsolescence of the CD; it aims to erode the concept of ownership altogether. And when millions of streaming tracks sit alongside your own music collection in Spotify's upgraded application, the absurdity of owning a digital file is made immediately apparent.

Of course, there are still reasons not to abandon your favourite music player. The free Spotify application relies on internet access being omnipresent and reliable, and anyone who has tried to listen to MGMT on the West coast mainline will know that it isn't. Then there's the issue of finding what you want; the iTunes Store is extensive, comprehensive, and not blighted with the soundalikes you find on Spotify (search for, say, "I Will Survive" by Gloria Gaynor; some of those recordings are no more Gloria Gaynor than I am Shirley Bassey). Of course, iTunes wins that particular battle because the music business is far keener to offer songs in return for cash than receive a streaming royalty whose calculation is shrouded in mystery. There has been much discussion this year about the meagre amounts supposedly earned by Lady Gaga for plays on Spotify; Ek claimed the sums were outdated, but some in the industry – notably the Warner Music Group – are highly suspicious of Spotify, and reluctant to commit to a launch in the USA.

These jitters give rise to dismissive comments that Spotify will be dead within a year. But there are good reasons why it won't be: we like it, we want it and we use it. And as has been proved over a decade of declining music sales, the power lies with us. If we're denied access to on-demand music, paid for by subscription or advertising clicks, the levels of illegal downloads – substantially slashed by Spotify et al – will simply rise again. But if we embrace it, there'll be more money for artists. Spotify rival We7 recently boasted of its success using an ad-funded model, citing payouts of between £2,000 and £4,000 for a track streamed a million times. If you're wondering whether that represents excellent recompense or is thoroughly miserly, well, welcome to the club; everyone is desperately trying to work out how these new models slot into the complex, multiple revenue streams of the modern music business.

The future of music consumption will inevitably be dictated by the younger generation. Microsoft has labelled them the "Net Set" in a new survey done to promote their Internet Explorer 8 Life Academy, which gives grants to young people with "socially responsible" business ideas. The Net Set emerge as a thoughtful bunch, with awareness of privacy issues (66 per cent worried about their personal details being exposed online) and a benevolent streak (71 per cent recognising the internet's role in promoting good causes), but here's a thing: only 18 per cent consider downloading music illegally to be a new reality that artists simply have to accept. The music business is traditionally fearful of "the kids" – but that's a not-inconsiderable 82 per cent who want to do the right thing.

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