Spotify CEO: “The Focus Isn’t on Profitability. We’ve Proven Our Business Model.”

Last week, financial filings revealed cumulative Spotify losses of$206 million, which is burning through available investment of ‘just’ $288 million.  But that’s not a concern, according to Spotify CEO Daniel Ek, who responded to the financial situation in an interview with the Wall Street Journal.

Here’s an excerpt.

spotifyfire

“Wall Street Journal: You’re making lots of money, but you’re operating at a loss. How long can that continue?

Daniel Ek: “The focus hasn’t really been about when we’re going to show profitability. I think a lot of people just look at the financials and say: ‘Oh wow, losses, that’s really, really bad.’ That’s not at all how we see it, we see that we’ve actually now proved our business model.”

“The difference between what we pay out in royalties and what we actually take in in revenue is increasing, which is positive.  [And] we believe that fundamentally this is a huge market.  Who on this planet doesn’t like music?  What we find is as [people] try out Spotify, above 20% actually decide that they want to pay for the service, which is astounding.”

On Licensing.

Wall Street Journal: “Now that more revenue is coming from subscriptions, can you pressure labels to lower licensing fees?”

Daniel Ek: “We’re now the second-largest revenue generator for them in the world after iTunes. So of course we have a lot more to say.

“The biggest hurdle is that the music industry is still built on licensing deal by deal, and that doesn’t really work in this internet world where a song made here in Sweden might be shared with someone in Ukraine.”

On the Artist Backlash.

Wall Street Journal: “Were you surprised by artists accusing you of unfair payouts?”

Daniel Ek: “I’m not surprised, but I’m saddened by it.

“[The move from physical to digital] is the single-biggest shift in the industry since the invention of the recording.  We’re selling access, not ownership; that’s something very, very different.

“And, you know, the focus of the artist ought to be how you maximize the number of streams, because that, in turn, will be better long-term for you.”

“But that’s hard for people to understand: All they see is millions of streams, and they see, you know, not millions of dollars in the end, but thousands of dollars, and they think that a million streams is comparable to a million downloads, which it obviously isn’t.

“Sure, you’re going to stream that Rihanna song five or 10 times, but you’re also going to listen to David Bowie’s entire back catalog, which you might not have gone out and purchased. Those are two very, very different behaviors.”

 

Image by Kristina N, licensed under Creative Commons Sharealike Attribution 2.0.

33 Responses

  1. Visitor
    Visitor

    “Wall Street Journal: “Were you surprised by artists accusing you of unfair payouts?”
    Daniel Ek: “I’m not surprised”
    Haha, I rest my case — this guy is his own worst enemy.

    Reply
    • Visitor
      Visitor

      And this is what Mr. Ek plans to do to repair damages and stop artists from leaving:
      “Wall Street Journal: “Now that more revenue is coming from subscriptions, can you pressure labels to lower licensing fees?”
      Daniel Ek: “We’re now the second-largest revenue generator for them in the world after iTunes. So of course we have a lot more to say.”

      🙂

      Reply
      • Tune Hunter
        Tune Hunter

        He has to say a lot more to Mr. Keeling who loves him and Spotify with is guts.
        Mr. Keeling controls most of the music so unless, we see major positive event they will KILL the business!
        Dear Mr. Keeling, if you want to make money on music, get it from Shazam, Soundhound and Gracenote, just KILL radio desplays and charge buyer or streamer 49 cents a tune!
        Than Mr. Keeling you will KILL most of the piracy and gain #2, #3 and #4 revenue maker after iTunes. By the end of 2015 you will double the business to 32 billions It is that simple!

        Reply
    • GGG
      GGG

      This comment right here sums up everything about you.
      A smart person looks at his or any business and can see and understand all sides of as many issues as possible.
      Whereas you, and a few others on here, are absurdly myopic.

      Reply
      • Tune Hunter
        Tune Hunter

        You are wrong!
        It is mind boggling to allow business with 350 million users and most desirable service to be in starvation mode for 13 years.
        The same business is keeping the music industry supermarket in the open with all tunes spread all over the town for grabs for anyone.
        It is insanity engraved in stone by Apple in 2008!

        Reply
        • GGG
          GGG

          None of this has anything to do with what I said.
          But please, bring up monetizing discovery again, I don’t think everyone’s read about it enough.

          Reply
  2. Chris
    Chris

    “The focus hasn’t really been on profitability”
    NOT
    “The Focus Isn’t on Profitability”
    Huge differences.

    Reply
    • Vail, CO
      Vail, CO

      Uh…

      Are you going to make your bed?
      I’m not really focused on that.

      Are you going to make your bed?
      That isn’t the focus right now.

      Bed remains unmade.

      Reply
      • McDoogle
        McDoogle

        “Are you going to make your bed?
        I’m not really focused on that.”
        The bed’s not going to get made.

        “Are you going to make your bed?
        That isn’t the focus right now.”
        The bed might get made later.

        That’s the difference. The “right now” implies that that will change later.

        Reply
  3. Yves Villeneuve
    Yves Villeneuve

    Spotify has 6 million paying subscribers and 80 million registered users. That’s a lot less than 20% !
    The answers were full of bullshit. If they have any sense of responsibility to its readers, The Wall Street Journal should write a follow-up op-ed delving into Spotify’s answers.

    Reply
    • GGG
      GGG

      For someone who constantly calls out people for supposed spin, nice try.
      You have said numerous times a huge percentage of that 80M is inactive users.
      And before you bring up it’s signups so it doesn’t matter, sign ups aren’t the same as people actually trying it out.

      Reply
      • Yves Villeneuve
        Yves Villeneuve

        With a comment like that, I assume you must be stoned on something. You did admit you get high on weed.
        I’ve always said roughly 90% of registered users, who obviously tried the service but were immediately turned off by it, are inactive. People don’t register unless they want to try it out.

        Reply
  4. DUB'lin
    DUB'lin

    How this P.R. thing got so out of control is beyond me, I wouldn’t say it’s too much of a stretch to say this is the next Pandora unraveling.

    Reply
  5. Krystal
    Krystal

    I’m not a business major…but…isn’t every for-profit business’ focus supposed to be on profit? It seems like an altruism.

    Reply
    • DUDE
      DUDE

      Short-term losses are fine as long as they lead to profitability in the future
      I think the dude’s point was that he’s more focused on building the business and gaining subscribers than he is on making a profit at the moment

      Reply
  6. Visitor
    Visitor

    Well, if Daniel Ek doesn’t care about profits, he could give his salary to musicians who struggle to make a living.

    Reply
  7. total bs
    total bs

    dude is so full of crap its astounding. with an upside down biz plan they’ll soon be in the failed .com graveyard in short order.

    Reply
    • jw
      jw

      Amazon wasn’t profitable for six years. Their stock was over $100 at the height of the dot com boom (when they were losing money), & dropped down to $7 after the bubble popped. When they finally made a profit, the stock only went up to $20, but no one really cared because everyone had lost faith in dot coms.
      But now, over a decade later, they’re still around, selling at $296 a share, & they’re making a lot of companies very wealthy by selling and shipping their products.
      Spotify is the same type of low margin model, dependant on critical mass. Everyone who stands to profit on the technology end of things (namely Daniel Ek & his investors) seems to understand this, it’s a shame that many who stand to profit on the music side do not. Pursuing profitability right now (which essentially means restricting free usage in the U.S.) would be done at the expense of future profitability. Reaching critical mass is essential, not nearterm profitability. Companies who operate on nearterm profitability tend to get themselves into precarious positions (I’m looking at you, major record labels), so long as there is venture capital to back it, Spotify is clearly making wise moves regarding growth versus profitability.

      Reply
      • frank
        frank

        Finally….someone on here that isn’t a shortsighted frustrated musician who doesn’t realize that the majority of artists NEVER have made enough money to make a living with their original music.
        PLEASE: It’s not spotify’s, major labels, radio, or anyone elses fault that you don’t make “enough” money. It’s YOU…your music is subpar, you don’t work hard enough (aka not willing to do the legwork on the road for YEARS), or you do have the talent & work ethic but you’ve just been unlucky.
        Either spotify or another service WILL win eventually as everything goes digital. The music industry NEEDS it to work!!!!

        Reply
        • jw
          jw

          To some degree, I can understand the artist perspective.
          “You’re not concerned with nearterm profitability because your salary is coming from San Fransisco. You’re building longterm profitability off my back & I can’t put food on the table because I’m not backed by investors.”
          That’s a real problem. But it’s not as if you can’t make money in music & it’s Spotify’s fault, or that Spotify is really cannibalizing album sales in very meaningful ways (just yet). That’s misdirected resentment.
          If the record labels were smart & forward thinking, they would be, & perhaps in cases they are, acting like VCs for the artists on their rosters during this transitional period, betting on their success to pay off once Spotify finally does become profitable & can afford to restrict free usage in the US.
          But the bottom line is that, even though you have to be a bit more industrious right now to survive, it can definitely be done, & there’s actually the potential to make much more money independently than you ever could before the internet. If you’re not making money, it’s very likely that you’re missing some key part of the equation: talent, drive, determination, organization, etc. And resenting Spotify does absolutely nothing to solve the industry’s problems, & in fact Spotify is quite likely the longterm solution to many of them.

          Reply
      • David
        David

        The comparison with Amazon is a good one – up to a point. Amazon and its investors have been willing to forego profitability in order to eliminate competition (from traditional booksellers, etc). Having done so they can ramp up their prices and/or put the squeeze on their suppliers. Never mind that this is a blatant breach of US, UK and EU anti-trust law – hey, this is the internet we are talking about!
        Spotify might succeed with the same strategy, except for two inconvenient differences in market conditions. One is that Spotify, to a much greater extent than Amazon, is competing with illegal free (pirate) sources. Ramping up prices to consumers is therefore not an option. Putting the squeeze on their suppliers – in this case artists and record companies – is still an option, but likely to prompt a major rebellion (cf. the IRFA debacle).
        The other difference is that Spotify faces competent and well-funded competition within the tech sector – not just existing services like Rdio, but future services by Apple and probably Google. And with genuine competition within the streaming market, Spotify cannot afford to alienate the content providers who may get a better deal elsewhere. Or even set up their own streaming service. It’s not rocket science.

        Reply
        • jw
          jw

          Great points, but I disagree.
          People who scoff at Amazon’s profits just aren’t looking at longterm investing. A company like Apple can operate with huge profit margins, but they’re only as good as their next product. I don’t see Amazon hiking up it’s prices any time soon, instead I see them investing in new technologies in order to keep prices low, & to remain indespensible to consumers in the longterm. Specifically, the profit margins are substantially higher when it comes to digital distribution. Their Cloud products are apparently hugely profitable, & that will only continue to grow. And while the company’s stock may never shoot up like Apple’s or Google’s, it’s going to consistently outpace other retailers, & it’s going to be a very stable longterm investment if for no other reason than that they’ve shown that they can adapt with changing markets & capitalize on emerging markets. From $7 to $300 is nothing to shake a stick at. If investors were to pressure Amazon to artificially increase profit margins (by increasing prices or squeezing suppliers), they would do so at the longterm expense of the company, & open the door for another “Amazon” to enter the market, as unlikely as that may be.
          That said, I also don’t think that Spotify will ramp up prices, either, unless you consider restricting free usage raming up the price. $120 is at the upper end of what consumers are willing to pay, & I actually see the price going down before going up. The factor determining Spotify’s profitability is not subscription prices or supplier costs, it’s the free-to-paid ratio. Reduce access to free streaming, reduce costs, increasing your profit margin. It’s just a matter of collecting enough free subscribers that when they close the door behind them, cutting off free access, they will have substantial number paying to stay, rather than exiting through the windows.
          Your anti-trust aligations, however, do apply to Spotify’s relationship with piracy. If Spotify can manage to fund free streaming long enough, it could literally choke out piracy. It could be that once Spotify decides to reduce access to free streaming, there may not be very many sources for illegal downloads to return to. That’s very optimistic, & would require substantial investment on Spotify’s part, but it’s very expensive to host piracy, & it only really makes sense at very small scales where the technology is cheap or at very large scales where advertising becomes profitable.
          Regarding competition, I think that Apple’s strategy is to leverage the money that it’s users have already invested into iTunes. It makes the most sense for them use their Match system to stream music that their users already own at the latest fidelity. This sidesteps the looming problem of digital format evolution & keeps people’s collections from becoming obsolete. I think that is a very touchy issue, as Apple can’t afford to pull the rug out from underneath consumers who have been paying outrageous prices for low quality m4a files over the years. That said, I’m not sure Apple’s streaming service is in direct competition with Spotify’s.
          And Google’s strong suit has always been search & e-mail & things like that, I don’t think that the android platform alone is enough to really make their Play product a threat to Spotify, who are essentially a music company, & who have a great Android app. Google, mind you, has as many failures as it does successes, & digital music is an instance where the cards are probably stacked against them.
          And if Rdio is successful, it will only be because Spotify fronted the money to fund the adoption to streaming music.
          I think there’s room for everybody, but to me Spotify is the only platform really set up to instigate widespread adoption of streaming.

          Reply
          • David
            David

            I agree with a lot of what you say, expecially about the ‘free-to-paid’ ratio. But I don’t think that once streaming has become the dominant form of music consumption, Spotify will necessarily remain the market leaders in streaming. Their service is not especially user-friendly, and a lot of its peripheral aspects, like the link to Facebook, and the useless ‘recommended for you’ suggestions, are just irritating. Spotify’s two big advantages are (a) they have the free option, which brings in the cheapskate users; and (b) they started earlier than most other services, which has enabled them to build up a more complete catalog than most. But obviously if Apple or Google or Amazon decided to go into streaming in a big way advantage (b) would not last long. And both Google and Amazon (more so than Apple) would have a huge advantage in getting advertising if they want to offer a freemium service.

          • jw
            jw

            Apple is in a weird place because… when they launched iTunes, there was no competition. They launched it in order to sell iPods. Now that there’s an ecosystem & app downloads are way outpacing music downloads, I’m not sure that they really have to launch an unlimited streaming service. A lot of people are expecting them to, & a lot of people sort of see Apple as the industry’s knight in shining armor (which is retarded), but I think iCloud/Match makes a lot more sense. I’m not totally sure unlimited streaming would sell more hardware or be worth the trouble for them. They’re a giant company with gigantic profit margins on the hardware side… it would have to really make sense for them to jump into that space.
            I don’t think that Amazon could provide the right experience. I mean have you ever downloaded an mp3 album from Amazon? You have to install software & it’s just a pain in the ass. I mean, if all it took was reach, shouldn’t xbox music be killing it right now? Free streaming on all Windows 8 pcs & tablets. But it’s not.
            And I think Spotify’s experience is much better than you give them credit for. You can sign up without Facebook & you can disconnect your account from Facebook if you’ve previously connected. I have friends who prefer Rdio, but for the social integration, not necessarily the experience. If you prefer the rdio experience, I’m not going to argue because it’s largely subjective, but as far as software goes, I think it’s incredibly well designed… I think it’s the best jukebox-type software out there, personally. And I think it’s the most user friendly option.
            Also, Rdio has had plenty of time to fill out their catalog. I don’t see that as an excuse in 2013. And I don’t really even see that as a significant competitive advantage for Spotify. Xbox Music has 30m songs, but still no adoption.

          • David
            David

            In my experience, Amazon is more convenient than iTunes, and usually cheaper. Maybe iTunes is easier if you have Apple hardware, which I don’t.

  8. Visitor
    Visitor

    “the focus of the artist ought to be how you maximize the number of streams”
    That statement implies (and rightly so) that there is a maximum number of streams achievable by any particular artist in a given time frame. Which leads to the question: given what we know about how much a stream is worth, will achieving that maximum number translate into a meaningful income.
    The answer, for most of us, is: no.

    Reply
  9. Tune Hunter
    Tune Hunter

    What a nerve! Arrogant theft with permit!
    Mr. Ek under permission from few incompetent industry groundskeepers is giving away the music store at 10% of the face value.

    He has all the tools, almost full access to all the goods and permission from top brass to sale the content of “Music Wal-Mart” for just 10% of the retail price.

    Lets remove him from our property, or lets take away from him discovery tools and convert them cash machines – it will bring some logic to music playground!

    Reply
  10. Just Another Voice in the Crow
    Just Another Voice in the Crow

    “…given what we know about how much a stream is worth, will achieving that maximum number translate into a meaningful income? The answer, for most of us, is: no.”
    That’s correct. As correct as any given market where only a few bands/artists actually succeed over all others where it comes to fans, gigs, tickets sold, and records sold, or streamed. <1% will ever acheive anything remotely resembling even minimum wage sustainability.

    Those who are concerned about where they're at professionally need to get some business consulting that makes sense for their area. The artists I know personally who are making more than half their annual income from something music related approach things differently than those who play the pubs and bars for nickles and pints on a Friday night.

    I don't know anyone playing pubs and bars full time .. or any who are making a living doing it solely...

    Reply
  11. Yves Villeneuve
    Yves Villeneuve

    A music subscription is not the same as renting a movie or song. The intent of a music subscription is to offer perceived ownership of the entire music universe at a very low cost for high volume music consumers.
    Every answer in this interview is bull.

    Reply
  12. Tune Hunter
    Tune Hunter

    Where are the labels?
    The guy is a master of propaganda and gets all undeserved exposure and attention!
    Again and again Spotify with free Shazam and similar tune suggest “machines” is a steamroller shrinking the industry and makes original Napster a laughing stock!
    RIAA and labels: just reward with cash and convert all discovery entities, ASAP, to mandatory music retailers – you will see biggest cash ever and you will not need streaming, better yet streaming without those id/discovery engines is and will be worthless!

    Reply
    • Visitor
      Visitor

      “The guy is a master of propaganda”
      Yes, awesome.
      So, which part of his propaganda did you enjoy the most?
      1) Mr. Ek isn’t surprised that artist say royalties are too low?
      or
      2) Mr. Ek thinks he can pressure artists to accept lower royalties?
      I personally fell for the combo.

      Reply

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