Ahead of Spotify’s earnings call for its 2020 second-quarter results on Wednesday morning, the company’s cofounder and CEO Daniel Ek and CFO Paul Vogel got on the phone for a short call with Variety’s Jem Aswad and Todd Spangler. The conversation follows in full.
How did you launch in 12 countries, including Russia, during a pandemic? Was a lot of the ground work already done before the launch earlier this month?
Ek: Yeah, this was a fun one! We’ve had a virtual war room for quite some time, but you’re entirely right, usually when we launch in markets we start much, much, much earlier when we build up the market launches, and sometimes it’s even years in advance to secure all the licenses and partnerships that we need to in order to enter thoughtfully into those markets on the ground. And obviously this group of market launches, including Russia, has been a special cluster for us and something that we talked about at the beginning of the year as well.
In the promotional video you did for the launches earlier this month, I don’t think anyone was wearing masks. As your offices open up, do you plan to incorporate Covid into your messaging?
Ek: You’re right, no one was wearing masks, I don’t think so. The promotional video was shot in the various artists’ different homes, so I sincerely hope they were safe. We haven’t opened up any of our offices yet, even though I’m sitting I one of them right now, but there are no people around me, so that’s why we can do this.
Do you have a sense of when your offices might reopen?
Ek: We’re definitely going to look to local guidelines, my suspicion is that there will be some markets where we’ve seen Covid levels go down dramatically and those would be the ones where we would open first, and really talk to local regulators and do it when we feel it’s safe for employees to return to work.
Vogel: We have said that we will allow any employee that wishes to can work from home for the remainder of the year.
Do you think a lot of employees will work from home permanently?
Ek: I don’t believe so, we’ve spoken quite a lot to our staff during this downtime, and I feel the vast majority are eager to get back to work, so I feel like there’s a good chunk of them that want to get back to the offices. Now, that said, I feel there may be more flexibility. I think we have proven that we are capable of running this business regardless of whether you’re seated at your desk 9 to 5 every day. So that flexibility is something to build from, and I think people are excited about coming back to work, and if they want to they can work half days from home or be more flexible. We’re definitely having those conversations internally and we want to support that for our employees as well.
Part of your recent deal renewal with Universal makes them “early adopters” of your technology. What does that look like, and isn’t it giving a competitive advantage to the world’s largest music company?
Ek: I don’t know if it ultimately will be a competitive advantage but ultimately what this means is that it’s always better that you develop your products and technologies on the basis of the real needs of your customers. And what’s so great about this partnership with Universal is that they’re really leaning in and they want to be the first to test more of these products and experiment with us and be very clear about what their threshold is for deeming something a success, or [whether it] needs to be improved, and so this is a great learning experience and we’re obviously going to take that learning and extrapolate from the rest of the marketplace, including all the other labels and the independents as well.
[On the earnings call, Ek added: We’re very excited by Universal’s willingness to experiment and go all in on the marketplace. What that means is Universal has seen early success with this and were very excited, and wanted to experiment with paid tools but also engage with tools for [artists]. Overall we want to work with all labels but we’re very excited to see Universal go all-in.]
But they are seeing some of your products before their competitors?
Ek: They’re certainly seeing a product and being able to give feedback but again, that’s not too uncommon. For instance, if you read about various ad networks doing deals with publishers like Snap and Spotify, in many cases it’s very similar: They too are seeing some of the products, being able to give feedback so that it better fits what their customers may be interested in as well, so I would characterize this in very much the same way.
What are the next geographic areas you hope to expand into?
Ek: We’re at 92 markets now and there’s something close to 120-130 markets around the world, so among them of course the big, big region that’s missing for us is many parts of Africa. That’s definitely something we’re excited about and we’re looking into what the feasibility is to expand even further.
Your stock is at an all-time high, but many analysts say your stock is overvalued. What would you say to counter that?
Vogel: We don’t really talk about the stock price very much, our view all along has been we’re building a business for the long term and our belief is if we continue to execute our planning for the long-term mission the stock price will take care of itself over time. So when the stock is really weak it’s weak, when it’s strong it’s strong. We’re just focused on long term growth and the success of the business.
There’s a Congressional hearing with the big four tech CEOs today — the European Union is investigating Apple, specifically about the app store, based on a complaint from Spotify about their business practices. What needs to happen here in terms of what governments need to do to level the playing field in terms of the power Apple and Google exert in the market?
Ek: This is something we’ve talked about for quite some time as well but we feel there’s a real need for platform principles so about 20-25 years ago there were formed various rules around net neutrality that really dictated how the internet should work, and what happened with some of these platforms is it’s put some of those things out of place. I think it’s great that Congress and the government are looking into this right now because generally speaking tech companies are obviously more influential and we now have close to half if not two-thirds of the world’s individuals on the internet, many of them using these smartphones and these platforms. So I think it’s great that the U.S. Congress is looking into this as well as the E.U. Our view is that we need some real platform principles that enable these platforms to be open so that real competition can happen and companies like Spotify and other start-ups are able to build businesses and compete for those customers’ attention time and wallets so that we can have a thriving marketplace.
When you expand into new markets in the future, how will you avoid the sort of standoff you had with Warner in India over royalty rates?
Ek: India was a special marketplace in the sense that it’s been a very evolving marketplace with a lot of different dynamics — you have everything from 3g to 4g penetration pretty much exploding over the course of 18 month period. So a lot of things happening in that marketplace, which I think was unique to India, plus obviously the size of a billion-plus future consumers. I don’t expect the same type of time period to negotiate in many of these other markets but it is true, as I mentioned about Russia, we in many cases start years in advance of entering a market to make sure we can get the appropriate licenses from all the local rights holders and labels, collecting societies, publishers etc., and that’s a process we’ve been doing for the better part of 10 years. Some of those negotiations take time, some of them are relatively easy and kind of ebb and flow, and it depends on the marketplace as well. But it’s just the reality of doing business in the content industry, I don’t think it’s all too different from what many other companies deal with. I’m pretty bullish that we will be able to do that and there will be less of an impact than India.