As I have always understood it, your local music collection is included in the client. If you share playlists containing tracks from your local collection. But if they are not provided by Spotify, friends need to have the same tracks locally as well to be able to play them.
http://www.spotify.com/nl/help/faq/local-files/does-spotify-...
As I have always understood it, your local music collection is included in the client. If you share playlists containing tracks from your local collection. But if they are not provided by Spotify, friends need to have the same tracks locally as well to be able to play them.