I agree that would be what good software would do, but what incentives would Spotify have to do that? They would have to pay for hosting and are possibly legall

I agree that would be what good software would do, but what incentives would Spotify have to do that? They would have to pay for hosting and are possibly legally responsible for the file content, which could itself be illegal. And most people today who use Spotify don't extensively listen to music via MP3 files.