Spotify CEO and co-founder Daniel Ek doesn’t do many interviews. So when he does, it’s worth paying attention to what he has to say.
Ek has just committed some thoughts to a microphone, within the boundaries of a podcast – the very listenable Invest Like The Best – on which he is questioned by host, Patrick O’Shaughnessy.
The discussion covers ground including Ek’s philosophy in business, the lessons he’s learned in his career and, of course, Spotify’s much-debated future strategy (with a particular focus on… you’ve guessed it… podcasts).
You can listen to the full thing through here (and, indeed, on Spotify), but here are three nuggets MBW has deemed it particularly interesting to share with you via that embarrassingly archaic medium of words, spaces and letters…
1) Spotify has 5,000 employees – and wants to add a billion dollars-plus every year to its revenues
Ek tells an anecdote about meeting an entrepreneur in the chocolate industry over dinner while on holiday in Dubai.
This man was happy, he told Ek, growing his business at 10% a year – and the curious Swede couldn’t work out why he didn’t want to grow it at 30% a year or 50% a year instead.
The man explained he had a great quality of life, and knew that growing a business at 30% a year invites all sorts of problems you then need to solve – not least constantly hiring staff.
Ek realized that, to grow Spotify at the rate he wanted to, he’d have to be really involved, hire lots of people, and that there would be lots of problems that needed fixing along the way.
Okay, not the most electric anecdote to kick off with. But it does lead to this bit, which is pretty interesting, especially when you consider that Spotify ended 2018, according to its annual report, with 3,651 employees.
“Spotify today is a company of 5,000 people, doing many billions of dollars every year, and if we’re going to keep that growth rate, it’s kind of like we need to find a billion or two billion of new dollars [in revenue] every single year [ahead],” says Ek.
“And everyone knows that’s very hard from a standing start, so you have to create a culture of experimentation… a culture where we’re taking risks and [where] having a lot of failures, honestly, is okay too, if you want to experience that kind of growth.”
Another interesting bit of context: at the close of 2018, Warner Music Group, the smallest of the three major music companies, had 4,660 employees.
Later on in the podcast, Ek says: “The long-term thing is we can’t rest on our laurels. We believe our market that we’re going after is audio, and that’s going to be at least a billion, probably two or three billion people around the world that [will] want to consume some form of content like that on a daily or weekly basis. And if we’re going to win that market, I think we have to [own] at least a third of that market.”
2) There are three good reasons Spotify won’t do exclusive content deals in music – one of them is record labels (but they’re not the most important)
While discussing the value of nailing down some platform-exclusive podcasts amongst Spotify’s already vast-library (over 500,000 ‘casts and counting), Ek takes the time to address a well-worn debating point amongst analysts: Why doesn’t Spotify ‘do a Netflix’ and own/license more completely exclusive pieces of music that you can’t get anywhere else?
“In music, we do not believe [that signing] original content or being our own label is a viable strategy,” he says. “That’s not for the reason that most people think, which is, ‘Hey, you are just worried about competing with your suppliers?’ and all that stuff.
“There are three very strong reasons why we don’t want to pursue [music exclusives], and why we think it’s a bad idea.”
“Actually, the primary reason why we’re not doing it is because it doesn’t make sense for the artists… because if you think about most artists today, the vast majority of their income is derived from touring – 80% or so. And, if that’s your business, then your core thing you would want to do is spread your music as wide as possible [to] create new fans that want to come and see your shows.”
Adds Ek: “The second thing is, because of how copyright laws are built, music, specifically, has a compulsory element, which means there are a lot of players out there, radio stations, etc. that don’t need to license every piece of content. They can rely on these statutory licenses and therefore use content. So even if we wanted to have content exclusively, we couldn’t prohibit radio stations or even YouTube for that matter, [from having] that same pieces of content… so the value of exclusivity just isn’t very high in music.
“And then thirdly, we would compete with our suppliers, which I generally don’t think is a great idea.
“So there’s three very strong reasons why we don’t want to pursue it, and why we think it’s a bad idea.”
3) He’s not sure Swedish clothing giant H&M has the right strategy for a harsh global corporate world
Ek believes that the globalized world of 2019 will see two victors in business: those with massive global scale (like Spotify), and those niche products which super-serve small audiences. Those in the middle, he explains, are in danger of getting squashed.
And it’s while making this point that he suggests some changes might one day be needed at Swedish clothing giant H&M, which, he points out, is considered “the pride of the nation” in his homeland of Sweden.
“[H&M is] seen as this juggernaut, and they have a very interesting model in that they’re vertically integrated – so they, historically, have produced their own clothes and they own all the distribution i.e. all the stores,” he explains, before clarifying that H&M service a “clothes for everyone” market.
He continues: “It’s not supposed to be high end; it’s for the everyday shopper. I don’t know the size of the ‘everyday shopper’ market globally, but I would presume it to be in the trillions.
“You have this company that while it’s fairly large, it cant even address probably even 1% of that market. And so I would say that trying to own all distribution and have it vertically integrated… is not going to get you to scale.
“So if they ever asked me, which hasn’t happened, but if they did, I would say you would have to give up one or the other: either focus on creating the most amazing things that you could imagine, [but] you probably cannot exclusively distribute through your own stores cause it won’t work… or, the flip side is you have to bet everything on distribution, and if you do that, then it probably makes more sense to bring in other [clothes] suppliers to help you.”Music Business Worldwide