Is This the Future of Music?

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Since its U.S. launch, Spotify -- a cloud-based music service -- has gained 400,000 new paying subscribers, bringing the service's total user count to 2 million paying subscribers and 10 million total listeners. Online music sellers should take note, because if Spotify continues to grow at this rate, it may become the latest service to disrupt the music industry.

The jukebox of your dreams
Spotify is a music-streaming service. After creating an account, users can get up to six months of free ad-supported music on demand. Once the trial period has expired, they're limited to 10 hours a month and a five-play limit on any track.

To continue the endless music buffet, users can sign up for one of two plans. The most basic plan costs $4.99 a month and eliminates the ads as well as the time limit. Spotify reserves its best goodies for the $9.99 premium service, which lets you listen on your mobile phone and other devices and download tracks to your computer or phone so you can keep listening offline.

OK, it may sound familiar
Spotify isn't the first subscription music service. Rhapsody, Microsoft's (NAS: MSFT) Zune Pass, and Best Buy's (NYS: BBY) Napster have struggled along for years. A handful of similar services, including Grooveshark, Mog, and Rdio, have popped up recently. 

Basically, two things set Spotify apart. First is its integration with Facebook. You can check out what your friends are listening to and share new tracks and artists you've discovered with a single click. Rdio and Mog have similar features, but neither has the following of Spotify. Second, the service just works. Searches come back quickly, music starts playing with almost no delay, and in all the hours I've spent with it, the stream has never stuttered or dropped out. It's almost indistinguishable from listening to my MP3 library.

In short, Spotify is what a cloud music service should be. Amazon.com's (NAS: AMZN) Cloud Player and Google (NAS: GOOG) Music work well enough if you don't mind the horrendous upload times. However, the storage fees get quite pricey with a large library. Apple's (NAS: AAPL) Music Match eliminates the upload lag for a reasonable price, but it doesn't stream music -- plus there's that whole Apple Lock-in problem. Sure, you don't own the music, but the flexibility and ease of access make ownership unnecessary.

Who needs to worry
Obviously, Apple, Amazon, and Google will continue thrive even if their music ventures shrink, but Spotify could do a lot of damage to Sirius XM Radio (NAS: SIRI) . The service also has a "radio" feature that will build stations filled with a certain genre or of artists similar to your favorite band. If you're nearing the limit of your data cap or the cell coverage is spotty, you can switch to offline mode and listen to the tracks you've already synched with your phone. For music lovers -- especially ones who don't care about Howard Stern -- it's simply a better option than satellite radio.

Pandora Media (NYS: P) could also find itself in trouble. For now, it remains the best music-discovery tool around. Spotify's "radio" feature currently lacks the ability to fine-tune a station by liking or rejecting tracks. The algorithm also seems to play it rather safe, so you don't get the same surprises Pandora will throw at you after you've listened to a station for a while. However, Spotify's social features could wind up leading you to more new music than Pandora's magical song-picking machine can.

Foolish takeaway
Spotify is privately held, so I can't suggest you add it to your watchlist, but I would recommend keeping an eye on its publicly traded competitors to see how well they manage as our media consumption evolves. Add them to your watchlist and stay up to date with all the latest news and analysis.

At the time this article was published Fool contributor Patrick Martin owns no shares of any of the companies mentioned here. You can follow him on Twitter, where he goes by @TMFpcmart03. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.The Motley Fool owns shares of Microsoft, Best Buy, Apple, and Google.Motley Fool newsletter serviceshave recommended buying shares of Google, Microsoft, Apple, and Amazon.com and creating bull call spread positions in Microsoft and Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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