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Spotify’s Daniel Ek Talks Royalties, Data-Sharing, the Future: ‘I Was Never a Disrupter’

Since Spotify launched in the U.S. in 2011, there’s rarely been a month, or even a week that the company or its founder have not been in the news — whether in a positive light (Spotify essentially led the streaming revolution that has saved the music industry) or a negative one (songwriters and publishers, among others, have long complained that the service doesn’t pay enough). Through it all, Ek has calmly articulated his rosy vision for the futures of his company and the music industry, while sidestepping discussion about some of the knottier issues that have come with the adaptation of streaming — such as how Spotify, which loses hundreds of millions of dollars a year and will for a long time to come, will ever become profitable.

Not surprisingly, he didn’t directly address any of those issues — or the company’s latest public black eye, its appeal of the Copyright Royalty Board’s decision to increase songwriter rates — in his latest forum for a rare interview, a Freaknomics Radio podcast. While he talked a lot — the complete transcript of the podcast is nearly 10,000 words long — he’s said a lot of it before, so following is a heavily edited highlight reel of the more substantive parts of the conversation.

How do you define Spotify’s mission?
Daniel Ek: So the way I think about our mission is to inspire human creativity by enabling a million artists to be able to live off of their art and a billion people to be able to enjoy and be inspired by it. … I think we are in the process of creating a more fair and equal music industry than it’s ever been in the past [note: he does not elaborate] … The industry is really kind of changing. And we’re obviously a huge part not so much in the change but just being a participant in that dialogue about where it’s going, what is the role of a manager, what’s the role of a label, what’s the role of an agent, what’s the role of a publisher. Because all of those roles are kind of right now moving along as the industry is becoming more and more digital.

From what I gather, Spotify has little leverage, or maybe even interest, in how [labels] distribute royalties to their artists, correct?
We have nothing to do with that. What we are trying to do, however, because this is such a dramatic shift in an economic model for artists, one of the big things was how do we educate people about this. Because really even the iTunes model was fairly simple: I’m selling my goods and, you know, I’m getting X for it. We can argue what X should be, but it’s really that. Here with streaming it’s like I’m getting a revenue share of something and it’s streaming, and it looks like it’s a very small number per stream. But what is a million streams? Is a million streams a lot? Is it a little? Is it, you know — how should I think about it? That ended up being a very, very big shift.

Are you saying that independent artists are, over time via Spotify, gaining leverage in the revenue ecosystem?
Right.

Can it be a sustainable future for them?
I think we are in the process of creating a more fair and equal music industry than it’s ever been in the past. So I’ll take an example like, back in 2000, 2001, at the very, very peak of the music industry, peak of CD [sales], our estimate is that there were about 20,000 to maybe 30,000 artists that could live on being recorded music artists — they could be touring, they could be doing other things, and the number could be far greater than that. But there were only like 20-30,000 that could sustain themselves [on earnings from recorded music]. Why? Well, because, again the distribution costs so much, which ended up being that there’s very few artists that could even get distributed to begin with. And because the costs were fairly high for a person buying the music, you ended up going with what you knew and wouldn’t take that much risk on unknown artists. So in the world with streaming, what’s really interesting is the alternative cost for you to listen to something new is virtually zero. It’s just your time. And because of that, you do listen to a lot more music than you did before and you listen to a bigger diversity of artists than you did before which in turn then grows the music industry.

Can you talk about Spotify customer data. What do you have and what do you do with it?
Well, what we do with it now is very tightly regulated because we’re originally a European company and in Europe, I believe, five or six years ago there was a new initiative called G.D.P.R. that officially became a law last year. And obviously we’re complying with that, and what it basically says is that all the data that we have around you as a customer, you need to be able to ask us for it and we need to deliver it back to you. You need to have an opportunity for it getting deleted by us.

What are your abilities to monetize that data to third parties?
Well our ability to monetize it is obviously based on the contract that we have with our users, so obvious things like that would be what kind of genre of music are you listening to, what’s your age, what’s your demographics. And those are things that advertisers can target against.

And how well do you monetize that currently?
We monetize some of those aspects, of course, like any normal ad platform. It’s very important though to note that we’re not selling any customer data.

That’s what I’m asking. So there are ads on the Spotify platform.
Yes.

You’d be fools not to target those to listeners based on their demographics and their listening tendencies.
Of course.

But you do have a lot of data that would be valuable to third parties?
Oh yeah, massive amounts, but not even just like for other advertisers. But you can imagine even for the music industry, there’s tons of data about like how their songs are performing or other people’s songs might be performing that could inform them about what they’re doing. We’ve taken the stance that we don’t monetize the data itself at all. We don’t sell the data.

Why?
Well, I think it’s an important one for us that users should be able to rely on us not — my fundamental view is it’s their data. If we can use the data in order to make the Spotify experience better, then all good and great. And I think many users would say yeah, I agree with that. But because now of G.D.P.R., which I do think is the right step, we can argue about like was it the right implementation of it and all those things. But I do think it’s great for customers that there’s something like G.D.P.R. there. And you can delete the data. You can also opt out of specific things that we are gathering about you and say, hey I don’t want you to know X or Y.

You’ve spoken in the past about five and ten-year plans. Where are you right now?
I’m in year two now of a ten-year commitment.

What did you see in the future of Spotify that you thought was going to be excitingly challenging for 10 years?
Well there’s really two things. The first and more important one is really from the inception of Spotify, the assumption was that we would solve the user problem — get people to listen in a much better way and then they’ll contribute back to the music industry. The core assumption was that the music industry would take care of all the other things — how people get signed, how they get heard. And I realized that that just didn’t happen. So we’re largely doing business the same way as we were doing 10 years ago, [although] there’s been some evolution of that.

But I want to work with the music industry. I was never a disrupter. That’s the big misunderstanding about me. I believe the record companies are important and will be important in the future. But we believe we can be the R & D arm for the music industry, that we can develop better tools and technology to allow them to be more efficient and thereby creating more, better solutions for them and for artists.

Can you give an example of how the efficiency happens?
Well, one of the hardest problems right now for an artist is to get heard. One of the biggest platforms to be heard at would be Spotify, right? So today the primary tool that an artist has to get heard on Spotify besides putting the music on there is getting known by one of our editors. So in a weird way, like, while we want to democratize music, we’ve kind of become gatekeepers as well. So the question is can we develop tools that enables artists to promote their music more efficiently just by themselves on the platform. And that could be in the form of being able to talk to their existing superfans that are on the platform. It could be in the form of better promotional tools for record companies in how they pitch music and get the music out there.

Are there still holes in the Spotify music library that you really want to fix?
There are. But obviously by now the holes that we have are probably more regional holes than the fact of like the big ones. I’m sure that there are — Garth Brooks being probably the best-known example right now. But most of it is really about you know, old music, getting the archives up. I’m very proud that we did that deal with the BBC a few years ago where we’re now bringing the entire archive onto streaming. Same with Deutsche Grammophon, the German equivalents as well.

So would you ever consider in a case like Garth Brooks — I mean, I’m sure you’re going to say no to this, because it would be illegal — but would you ever consider saying, “Look, we’re Spotify, we’re just going to put the music there,” and then he will see how well it does?
No. We’ve never done that. It kind of goes against the ethos of what it is we’re trying to do. I mean, again, when we started, that was like the modus operandi. A lot of these services where people just uploaded all the music and then they figured out the problem later on. That was never the approach that we took.

And why was that? Do you consider yourself a particularly ethical person?
Well, I don’t like to say that we’re more ethical than other people. It just felt like the right thing to do. And I believed that the problem for the music industry with the past had been just that fact that it always felt like it was people who wanted to disrupt the existing music industry. I don’t believe that the music industry has to be disrupted. I believe it has to be evolved. So we like to work with them as partners. That’s always been our approach. There isn’t music on Spotify that the copyright owner haven’t authorized us.

If you weren’t doing this now — what would you be doing?
I would probably do something in health care — it’s a weird revelation because if you’d asked me 10 years ago, I wouldn’t have said that. But right now it’s like … people always said, “Oh, Spotify is so amazing,” and my response was always, “Well, it’s not saving lives, but it’s good.” So a few years ago I was thinking to myself, “Why am I not saving lives, and what would I do if I did that?” I think in healthcare a lot of technology currents are starting to play out — and it’s not just about the sort of digital part of these things. It’s the advancement in biotech overall, CRISPR, proactive medicine. Like it’s going to be the next decade or two decades, I think, we’re fundamentally moving from a place where we will look at doctors or the way we treated people like it’s almost witchcraft two decades from now. And so we’ll just know a lot more. And that’s fascinating to think about the implications that that will have.

 

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