Spotify reaches 3m paid subscribers

Spotify has confirmed that 3m people now subscribe to its premium service, as the Anglo-Swedish firm prepares to fend off the challenge of US music streaming giant Rhapsody.

Spotify has piled on 500,000 more subscribers since announcing it had hit a 2.5m customer base last November. Around 20% of its user base now opt to steam music without any advertising by paying a monthly fee.

The latest figures suggest that Spotify is now starting to make the 'freemium' model work, involving the idea that enough people will upgrade from the basic free service to a paid-for tariff to make the business viable.

The ratio of its paid-for subscribers has increased from 15% last March, when Spotify topped 1m subscribers.

In an interview with the Financial Times, Spotify's chief content offer Ken Parks said: "We have achieved some pretty great results in terms of the ratio of paid users.

"We have an enormous internal effort to drive conversion and engagement with the service. We are very focused on growing in our existing 12 markets as well as expanding in other markets."

Spotify, which offers a £4.99 tariff for ad-free listening on PC or £9.99 for use on mobile devices, expanded into the US last year and also further integrated its service into Facebook.

To diversify its business, the company announced a new open platform for developers to create music apps for the Spotify community.

But most analysts have been watching to see if the firm can make the freemium business model work in music streaming after long-standing doubts over its validity.

Parks said that Spotify has been successful in converting 'free' customers to pay via a 30-day free trial offered across various territories. He also noted that half of Spotify's paying subscribers are under 30 years old.

"This is a healthy model. As it scales it gets better for everybody," said Parks. "That is a remarkable number of people who are generally hard to monetise."

Reaching 3m subscribers will give Spotify confidence as it faces increasing competition from music streaming rivals, including Deezer, We7 and also Rhapsody.

US firm Rhapsody, available in America for more than a decade, is to launch in the UK and Germany this spring after acquiring Napster's international business.