Spotify Drops Russia Start on Slowing Economy, Web Rules

Spotify Ltd., the music-streaming service seeking new funding for its expansion, canceled plans to start business in Russia amid the country’s economic slump and tightening Web regulation.

The company isn’t going ahead with a debut that had been planned for the first half, Alexander Kubaneishvili, head of Russia for Spotify, said in an e-mail Monday. Kubaneishvili said that he is set to leave the company amid the canceled start.

Spotify, based in Stockholm, has more than 50 million users in markets including the U.S. and Europe and is seeking about $500 million in new financing, people familiar with the matter said last week. Services that offer music streaming in Russia include Yandex NV’s Yandex.Music, Group Ltd.’s VKontakte, and Zvooq, backed by retailer Ulmart.

Technology and media companies are limiting exposure to Russia as President Vladimir Putin tightens the state’s grip on the Web amid growing tensions with the U.S. and Europe. He has urged Internet companies to store user data locally and allowed websites whose content is deemed extremist by prosecutors to be blocked without a court decision. Media companies are required to reduce foreign ownership to no more than 20 percent by 2016.

Google Inc. is moving its engineering operations out of Russia, a person familiar with the matter said in December. NBCUniversal said last month it’s shutting its Russian pay-TV business and Finnish media company Sanoma Oyj in December agreed to divest its holding in the Russian publisher of Cosmopolitan and Esquire.

Spotify canceled the Russia start because of economic crisis, the political situation and new laws governing the Internet, Moscow-based newswire RBC reported today, citing a letter from Spotify to potential local partners. Kubaneishvili declined to elaborate on the reasons. Alison Bonny, a spokeswoman for Spotify in London, declined to comment.