That's an interesting concept, and as long as they didn't mind the ads, then perhaps the ads being played would satisfy the royalties requirement.
But - perhaps not - consider Streaming - paying just for the subscription alone - isn't enough. (Or not paying, and running a version with ads.) When I pay for Spotify or whatever I stipulate that I am paying for use of it for my own private enjoyment, not to play in a commercial context like in a bar or restaurant I own. Same would apply to running free Spotify (with ads) playing it in a commercial context even with the ads would not be allowed.
You also have to look at who is getting paid from the terrestrial (AM/FM) radio stations. Radio stations that play music do pay royalties to the songwriters and publishers, but not to the artists themselves. I believe internet radio like Spotify does also pay the artists, but still apparently that is not enough to allow its being played free in a commercial context.
The more you look into this, the more it becomes clear that everyone has his hand out when it comes to playing music, and unless everyone is getting paid, playing that music is disallowed in a commercial context.
Think about Disneyland or Disneyworld, as you walk through it, most of what you hear are instrumental Disney songs, which solves the royalty issue because they own the rights to all that music. Anything non-Disney being played, they have to license and pay for.
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