From The Wall Street Journal:
Neil Young, Stevie Nicks and Lindsey Buckingham owe Daniel Ek an enormous debt of gratitude right about now. The rock legends have all recently sold their song publishing rights for gigantic sums, sell-offs that can partially be attributed to the surge in digital revenue that accounts for more than half the global recorded-music market. One man saw all this coming before anyone else: Mr. Ek, the 37-year-old co-founder of Spotify, the world’s largest streaming service with 320 million users and counting.
For those of us who regularly call up almost any song we desire with a tap on our phone screens, it’s easy to think of streaming music as an inevitable development. But for Mr. Ek, streaming’s triumph was more of a self-fulfilling prophecy. Having endured years of pushback, Spotify has been at the vanguard of a global revolution in the way music is consumed. It’s quite a turnabout for the Stockholm native, who has endured heaps of negative press, the enmity of underpaid musicians everywhere, and the looming threat of competing services from Apple, Jay-Z’s Tidal and many others.
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A rabid music fan as a teenager, Mr. Ek’s exposure to Napster was a profound conversion experience. Shawn Fanning and Sean Parker’s file-sharing service was the shrapnel blast that tore holes through the web’s commercial firewalls. “Napster is probably the internet service which has changed my life more than anything else,” Mr. Ek once told an interviewer. What if he could merge Napster’s peer-to-peer technology with commercial content? What if he could draw file-sharing out of the shadows?
Even while Mr. Ek was rapidly moving up as a programmer in Stockholm’s hot tech market, the notion of a legal answer to Napster’s music streaming never left him. In 2006 Mr. Ek’s tiny startup Advertigo was acquired by Tradedoubler, a digital marketing company whose co-founder Martin Lorentzon was enamored of Mr. Ek and his ideas. The savvy, flamboyant Mr. Lorentzon would become both partner and cheerleader. When he came to visit Mr. Ek in his raffish Stockholm neighborhood, Mr. Ek quoted “The Godfather” at him: “Put your hand in your pocket like you have a gun.”
Mr. Ek knew that what made Napster so revolutionary was its decentralized protocol, its ability to transform everyone’s hard drives into public servers. Mr. Ek’s idea was to use similar technology in an improved experience that would be “better than piracy.” There was only one man for the job: Ludvig “Ludde” Strigeus, Sweden’s leading file-sharing technologist and the inventor of uTorrent, a program for ripping content from illegal sites. Mr. Strigeus and his team of engineers one-upped Napster, devising a system that eliminated glitchy downloading. Mr. Ek was on his way.
It was an inauspicious time for Mr. Ek to be stirring the pot. The music world was squirming its way through an uneasy transition into a digital future, and the great file-sharing panic of the early aughts was still in effect. Thousands of file-sharing users were slapped with lawsuits, while record labels fretted over the cannibalization of CD sales by a method of music consumption they likened to stealing cars from showroom lots in broad daylight. What Mr. Ek envisioned was a “freemium” music service in which ad revenue would be paid to the labels in exchange for the use of their catalogs. Customers would, in theory, eventually convert to the paid subscription service.
Record labels were cold to the ad-revenue model, and insisted on cash on the barrelhead before opening their songbooks. The pursuit of music licenses, Mr. Ek’s biggest hurdle, runs through “The Spotify Play” like a Holy Grail quest. In order to get, Spotify had to give, which is how, according to this book, behemoths like Sony BMG were paid tens of millions in non-recoupable advances and negotiated deals that gave them big equity stakes in Ek’s company.
It wasn’t just the music companies that Mr. Ek had to contend with; Steve Jobs wanted him marginalized, as well. By the time Spotify was founded in 2006, the iTunes store was the most successful music retailer on the planet, creating a proprietary system of MP3s for sale that drove consumers to Apple’s iPods. Spotify was bad for business, and Apple mounted a campaign against Mr. Ek, at one point threatening to remove Spotify from its app store. A fusillade of litigation between the two companies followed—and continues unabated. Eventually, Apple would see the wisdom of Mr. Ek’s model and offer streaming, though Spotify currently has more than five times as many paid subscribers as Apple Music’s streaming service.
So what about the musicians themselves? Spotify is still regarded as an evil empire among artists who feel they are grossly underpaid by the service. Does Spotify in fact shortchange performers to maximize profits? Not according to Messrs. Carlsson and Leijonhufvud, who claim that the labels, with their fat Spotify sinecures, choose to hoard the revenues (70 cents of every dollar Spotify makes is paid to master and publishing owners).
Link to the rest at The Wall Street Journal (PG apologizes for the paywall, but hasn’t figured out a way around it.)
PG notes that the music business exploits its creators just as much as the traditional publishing industry exploits its creators.
PG also notes that, in it’s infinite marketing wisdom, the publisher has not enabled Look Inside, but the links take you to Amazon for a preorder. Given the price, you can expect pirated versions of the ebook to appear shortly.