Sven Carlsson - The Spotify Play

Copyright 2021 by Sven Carlsson and Jonas Leijonhufvud

All rights reserved, including the right to reproduce this book or portions thereof in any form whatsoever.

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Diversion Books

A division of Diversion Publishing Corp.

www.diversionbooks.com

First Diversion Books edition, January 2021

Paperback ISBN: 978-1-63576-744-5

eBook ISBN: 978-1-63576-745-2

Printed in The United States of America

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Library of Congress cataloging-in-publication data is available on file

Contents

Prologue

Toward the end of 2010, Spotify had spent two years amassing seven million users in Europe. But the companys crucial US launch faced massive delays. Founder and CEO Daniel Ek was struggling to understand why.

He called and breathed down the line, he told one of his staff members, who would later recount the conversation.

Who? the colleague said.

Steve Jobs, Daniel replied.

Daniels colleague wondered if his boss was serious. What do you mean? He didnt say anything? How do you know its him?

I know that it was him, Daniel said.

After years of frustrating negotiations with the major record labels, Spotifys founder was beginning to understand who truly called the shots in the music industry. Apples resistance to Daniels free music streaming was becoming clear, and it was starting to burden him. The industry power dynamics at play weighed heavily on his mind as he walked to Spotifys headquarters in Stockholm, and on his many flights to New York, London, and Los Angeles.

The long shadow of Steve Jobs had towered over Spotify since the startup was founded in 2006. At that point, Apple was already the worlds largest platform for digital music distribution, with iTunes and the iPod music player working hand in glove. Now, seven years after the launch of the iTunes store, Apples grip was even firmer.

While Daniel Ek was fretting over iTunes in Stockholm, Steve Jobs was in Cupertino, California, obsessing over his own arch rival. The iPhone had become a huge success after launching in 2007. But three years later, his iconic product was under siege from a growing fleet of Android smartphones powered by Google. To Steve Jobs, music was a crucial weapon in a holy war against the search giant and its operating system.

The iTunes model, based on downloads for 99 cents per song, worked on any Apple device, and on PCs. But Android phones were not part of the iTunes ecosystem, and Steve Jobs liked it that way. He had spent years building Apples lucrative walled garden.

And he would be damned if one of his key competitive advantageseasily accessible musicwas compromised by some upstart from Europe streaming music for pennies on the dollar.

In this context, Spotify was a threat. The Swedish service was catching on in several European countries, and had created a lot of buzz in the US. Spotify had the potential to become a major challenger on Apples home turf. What if the startup was acquired by Microsoft or, even worse, Google?

For Daniel, access to the US was a matter of survival. After more than four years of growth and constant label negotiations, he was so close to being the worlds largest music market that he could almost taste it. By now, the 27-year-old Swede had powerful allies in the music industry. He had earned the support of Sean Parker, Napsters outspoken co-founder, and he was on a first-name basis with Facebooks Mark Zuckerberg, who had promised to help Spotify with their launch. Daniel had even lined up a deal with Universal Music, the label with the closest personal ties to Steve Jobs. But suddenly, Universals executives refused to sign. The machine ground to a halt, and Spotifys investors were becoming nervous. In fact, Spotify would soon start to see negative user growth for the first time. It could all come crashing down.

Perhaps Daniels only option was to talk directly with Steve Jobs. According to several sources, however, the Spotify CEO never got to meet his counterpart in Cupertino.

Despite his failing health, Steve Jobs continued to fight for his vision. He aimed to shift iTunes over to the cloud, and he wasnt afraid to badmouth Spotify and ad-funded music streaming to any label executive who would listen. As this book will show, many of them did.

At Spotifys headquarters, the air was thick with tension in late 2010. Their launch in the US kept meeting delays that nobody could explain. The companys top brass whispered about the bosses at Apple, Universal, Warner, and Sony. But only a few select people had any firm details.

Daniels colleague would never find out if it really was Steve Jobs who made that fateful phone call. The Spotify CEO was, after all, known to sometimes tell stories that were hard to verify.

WHAT HAPPENED IN the following years now belongs to history. Since launching in Sweden in 2008, Spotify can rightfully claim to have saved the record labels from piracy, returned the music industry to growth, and forced Applea tech industry behemothto change its business model.

While Steve Jobs broke the album down into tracks and playlists, Daniel Ek popularized the freemium subscription model, and laid the groundwork for a new era of playlist by algorithm.

With a market cap in the tens of billions on Wall Street, Spotify is the largest music streaming company in the world, with more than fifty million songs, over a million podcasts, business in more than ninety countries, and a user base expected to surpass 350 million in 2021. Nearly half of its users now pay for the ad-free version, making the platform the industrys most important source of revenue, with billions of dollars delivered every year. But what really happened during the companys spectacular journey to the top?

The Spotify Play is an unofficial corporate biography detailing how a secretive startup from the Stockholm suburb of Rgsved revolutionized music distribution.

As Swedish business journalists, the two of us have met and interviewed Daniel Ek and his co-founder, Martin Lorentzon, several times over the years. They have, however, declined to partake in any exclusive interviews for this book.

But in August 2018, as we were writing the Swedish edition of The Spotify Play , we were among the journalists invited to Spotifys new, state-of-the-art headquarters in Stockholm. During a brief question-and-answer session, we asked Daniel Ek to name the single most important reason for his companys success.

Ill give you two reasons, he replied. First of all, we were committed to the freemium business model when no one else was. This was very controversial.

Second, we started in Sweden, proved our model, opened up in more European countries, and grew organically one country at a time. Thats what finally made the music industry realize that our model was the future.

Daniel Ek has been reluctant to tell the full Spotify story. He has talked about certain aspects in the press, while carefully guarding the rest. So, to put this book together, we interviewed more than eighty sourcessome on the record, some on backgroundwho have been along for the journey. Many of those we asked declined out of a sense of allegiance. Others felt compelled to contribute, despite their loyalties. Some of our interviewees have served as executives at Spotify. Others have been board members, investors, or music industry decision makers. A few are direct competitors.

We have also relied on mountains of documentssome public, such as annual reports, and some confidential. We have pored over the interviews and public appearances that many other Spotify employees have made over the years.