Britain’s most popular music-streaming service could be out of business within a year unless it can make more of its users pay for music, industry experts claimed today. Senior executives said that Spotify could soon be “dead” if it continued to be available free and relied on advertising to fund the service.

They were responding to claims made by Spotify’s founder Daniel Ek, who in a letter to The Times said that the industry had fundamentally to change the way firms charged for songs. The service allows users free access to millions of tracks — from Lily Allen to Shostakovich — if they are put up with regular adverts. Premium subscribers who pay £9.99 a month can listen to tracks ad-free, as well as synchronise playlists with their mobile phone and listen to songs when their computer is not connected to the internet. But less than 10 per cent of the service’s two million UK users are believed to have chosen the subscription option.

Experts said that Mr Ek’s letter represented a plea to the music industry not to kill off the service, which is only a year old, with high royalty fees. Although the music industry believes it is well designed and useful in dissuading consumers from internet piracy, there is concern that the website cannot generate enough advertising revenue to pay for its music.

“Spotify will be dead within a year if it carries on like this,” said a senior executive at one of the big four music groups, who asked not to be named.

“Where is Spotify going to be a year from now with its free service?” said Dan Nash, a senior executive at Napster, the rival music-streaming service. “All these ad-supported models have burned out already; why is Spotify going to be any different?”

In the letter Mr Ek called on the music companies to stop the practice whereby Spotify has to pay them a fee every time a track was played. Instead, he said the future lay in a system where money is made through different routes, such as music downloads, advertising, merchandise and tickets to live events.

“I believe this is something that most people in the industry can agree to, but it can’t happen if the industry continues to enforce the per-play fees it has tried so hard to hold on to,” he says.

“The new model is about figuring out how to increase the revenue per user between the different models, not squeeze as much as possible out of every single transaction.”

Spotify’s catalogue is fast approaching the size of Apple’s iTunes, the world’s biggest online music service. But it has faced criticism recently from users and experts. Many had welcomed Spotify’s new mobile service, which allowed people to access millions of tracks on the iPhone, but some had complained that the mobile service was clunky and needed updating. Last month it had to revert to an invitation-only model to cope with the sheer volume of free subscribers.

Napster introduced a new British service yesterday in which users could access eight million tracks and download five tracks for a fee of £5 a month.

Similar rows held back the development of YouTube, which is still unlicensed in many countries, and only in the past month concluded agreements with Warner Music, home to Green Day and Led Zeppelin, and songwriters in Britain.

The music majors want to license subscription-based services, where income is guaranteed. Music executives believe that subscription income is the best prospect of halting the decline in revenues caused by piracy, which have led to about £300 million being wiped from music sales in Britain over the past five years.

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