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To expand upon the OP's original points (for those just joining us) Spotify sells advertising - radio-style 30s spots and banner ads that slide into the program every now & again.
However, even with my limited knowledge of all this, it sure doesn't seem like they're selling ENOUGH advertising to make it worthwhile. Half the ads that play are for other album/artists, which would be paid for by the ad agencies contracted by - you guessed it - the record labels. It's like the snake eating its' tail.
That said, it is still in beta I guess, so perhaps the variety of ads will increase heavily once Spotify can show potential advertisers what the demographic/uptake is like.
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