Lots of friends and colleagues from abroad have hyped up Spotify to me, and I don't doubt that it's an awesome service. As we hear more about Spotify, especially involving mobile apps and in-car services, I fear we might be getting ahead of ourselves. Specifically, I worry that users' fervor for the system overlooks the core reason why similar concepts have failed in the U.S.: the Digital Millennium Copyright Act.
The law was written during a time before iPod, in an era where it still seemed plausible that record companies could wield enough power to prevent users from finding content on demand without owning it first.
WFUV has a great, concise summary of the hoops broadcasters and webcasters must put themselves through in order to comply with the law:
No on-demand content.
Bizarre restrictions on the number of songs you can play from a given artist or album within any rolling three hour window.
No published playlists of your shows if they're archived, since users could conceivably find a song they want to hear within the archive of your show.
Podcasts of music shows? Oh, hell no.
And this has nothing to do with royalties, either. It has to do with how the DMCA interprets copyright and ownership in the work. To get around it, you need to get a signed release from every known and prospective owner of the copyright in a recording. Usually, that's the record label. But, with convoluted contacts from the past decade, it doesn't surprise me to see managers, artists, songwriters, compilation producers, recording engineers, and other lienholders in the mix.
For a service like Spotify to work in the United States, they've got to get all of those parties to sign off on exemptions and exceptions to DMCA. Otherwise, you've got another version of Pandora. (And, while Pandora's cool, nearly every limitation of the service can be traced directly to DMCA.)