Pressure from big labels seen driving Spotify free music cutbacks

Spotify has slashed the benefits of its free music service just ahead of its highly anticipated US launch. The company announced Thursday that it would halve the allowable hours of free music from 20 to only 10 hours per month and will limit free users to five plays per track. Spotify did not provide an explanation for the change, but some believe it’s due to pressure from the music labels to beef up Spotify’s paid subscriber base.

The changes to Spotify’s system will go into effect at different times, depending on when customers signed up. New users who sign up today will be able to get completely unlimited service for six months, after which time they’ll be limited to 10 hours per month and five plays per track. (This also applies to users who signed up between November of last year and now.) For users who signed up on or before November 1, 2010, the changes will go into effect in a couple weeks on May 1, 2011.

The company emphasized that its £4.99 unlimited tier and £9.99 premium tier would stay unaffected, and attempted to reassure open/free users that the changes wouldn’t be all that bad. “[T]he average user won’t reach the limit on plays for 7 out of 10 tracks, after a year of using Spotify,” the company wrote on its blog. “Above all, this means we can continue making Spotify available to all in the long-term.”

Some have speculated that the company made these changes as an aggressive move to convert more of its user base over to paid subscriptions. Spotify has 10 million total users (six million active), and revealed recently that one million of those are opening up their wallets every month. There’s a lot of potential for conversion there, and Spotify seems to be subtly laying on the pressure for free users to start subscribing.

According to an unnamed music industry rep speaking to the Financial Times, that may indeed be the case, but with a slight twist. The music labels reportedly “encouraged” Spotify to cut back its free offerings by presenting data suggesting that the business model wouldn’t hold up otherwise. “[Spotify] desperately want[s] to show labels high levels of conversion and will get higher levels of conversion by ratcheting back free,” the anonymous source said.

Whether Spotify made the decision itself or because the music industry twisted its arm, the changes are clearly over money. What would also bring in more money would be Spotify’s long-rumored US launch, which has been in the works for well over a year. The company has already signed on (at least) two of the Big Four music labels, but otherwise things have been moving slowly and a launch date has yet to be revealed. If Spotify doesn’t make its US launch soon, it risks falling behind newer offerings like Amazon Cloud Player as well as anticipated upcoming services from Google and Apple.

At the same time, Last.fm recently cut back its own free service to mobile devices, giving Spotify an opportunity to swoop in and woo some of Last.fm’s user base. Numerous Last.fm users threatened to switch to Spotify when the former made its announcement earlier this year, so there’s still enough mindshare left for Spotify to get in on the action in the US if it manages to make a move soon.

Spotify didn’t respond to our request for comment by publication time.