Even if you haven’t actually used Spotify, you’ve probably heard of the music service already.

Launched in April 2008, the European based model already boasts eight million music tracks
that can be heard instantly, whenever and nearly wherever one wants. Free subscribers to simply download an application at their website to receive ad supported access. Paid subscribers (currently 320,000) meanwhile, get even more benefits, including a higher quality sound. The cloud-based concept is potentially the future for the way people listen to music—and the service has already rolled out in eight European countries.
CEO Daniel Ek is the co-founder of Spotify and envisions the concept as the way forward for the future health of the music industry. Though he doesn’t enjoy being called an “entrepreneur”, the 27-year-old Swedish native has a long history of creating successful startups. Spotify, he claims, was inspired by the concept of Napster, albeit legally. Ahead of his upcoming keynote speech at this year’s Music Matters conference in Hong Kong, he talked to Scott Murphy extensively about what Spotify is, when it’s expected to roll out in Asia and how it might change the way we all consume music.
How excited are you to come to Music Matters in Hong Kong to speak…and why?
DK: I’m very excited about it. I’ve heard a lot of good things about Music Matters from record labels and service providers. I hope to speak about how music management matters and how making music more social is going to grow the music industry as a whole. Looking at China specifically, people are searching for music via social networks and that market is incredibly exciting. It’s also exciting to see Japan with all the amount of digital downloading there. We’re very intrigued about what we are seeing in Asia and we will see the patterns taking place in Asia going back to the Western world as opposed to vice versa on the internet.
Let’s talk about your background a bit. What did you learn from past entrepreneurial jobs that you have had?
DK: There are a few things. You’re always focusing on simplicity and solving problems for users in the easiest and fastest way. If you apply it to Spotify, we have enabled people to search for any music in the world and to do it in the fastest possible way. That’s kind of the way we started Spotify. We spend a lot of time making sure people can search music, play music and share music. With companies like Stardoll, what I’m fascinated with is that you can’t predict what works on the Internet. It’s really about filling a void and being able to make it efficient for the users. Stardoll is a company where you dress virtual paper dolls. Not even in my wildest imagination could I have ever thought of that idea, but that ended up being huge and now 50 million kids are playing with it. The lesson learned there is trying to fill a void. I do believe that people want to share things about themselves. That’s why sites like Facebook, Twitter and now Foursquare are huge.

I’ve read that you were really inspired by what Napster did…

DK: Absolutely. I have a massive record collection and I also grew up with Napster, Kazaa and Limewire. They’re great services and they enabled me to discover new music. What we’ve done with Spotify is to do it more efficiently, but also legally, in a way, which pays artists. Spotify is nearly two years old now.

Feel free to boast about it and tell me how many employees there are, how it works, what it costs and what your best features are.

DK: Spotify is a small application that you download to your PC or your phone. It allows you access to about eight million live tracks and two million more tracks that we have licensed but not included yet. You could pretty much search any artist in the world and play it within two or three seconds. We think that people listen to more music than ever from a bigger diversity of artists. Spotify is a cloud based service with a massive library and you can discover music on the Internet and then play it on Spotify. Or, you can share with friends via Facebook or Twitter. It’s kicking off the next generation of mixed tapes so to speak. We founded the business in April 2006, but launched the service in April of 2008. We have about 150 employees in eight countries. As a subscriber you access your library. I don’t think ownership matters anymore, except for your favorite music. I think access matters more. You can play it wherever and however you are. You can’t play Spotify on an Ipod, but you can play it on an Apple Touch, as well as Nokias, Android and Windows mobile phones.

We also cover some Samsungs, Motorola–a large number of devices. There are 60 -70 devices that we support. Most people in Europe are currently paying 10 Euros per month. If you go onto our website it will take you less than a minute to be a subscriber and use the service. Our public figure is that we have more than 320,000 paying subscribers and eight million users in total. Spotify is two models in one. One is an ad-supported model. You can use it on your desktop for free if you don’t mind hearing adverts and display adverts on your screen. If you want it on your portable device you have to be a paying subscriber. As a subscriber, you get better sound quality (a 320kbps bitrate vs. 160), greater access and more features are on the way. It’s currently in eight European countries.

How do you monetize Spotify?
DK: We monetize Spotify based on two things. We sell a lot of adverts, which pays for the free service. And then we have the subscribers. We also have a download service called Digital. So that’s a model for people who still want to buy tracks.

What can you do…and what can’t you do with Spotify?
DK: It’s not available on an Ipod. You can’t use it on your Playstation or Xbox…yet. Other than that, pretty much anything else is possible. If not directly through us, then there are IPs creating new products based on that.

How can you help the music industry?
DK: We can help via a couple different ways. We move people away from pirate services and get them into legal services. We drive awareness of the access model and a lot of people can become excited to having access to music wherever they are, which means they will pay for the subscription. What is so beautiful is that it doesn’t matter if you listen one time or two thousand times, the artist always gets paid. It’s a model so that people actually use a lot of music. That should be in the best interest to the industry as well.

How can you help acts?
DK: What’s really exciting is–because it’s an access-based system—the traditional model had favoritism with some acts. However, there’s no single act that gets a preferred placement in our store. We do help to break acts, but you can discover and hear any act. There is no editorial. We do what we do because we like the act. The beauty here is that it’s a democratic system so that we have acts that normally wouldn’t be played but get played on
Spotify. In the UK, there are Indian and Pakistani acts that are popular that aren’t showing up on ITunes, but they are on Spotify. In Sweden, we have a couple Australian acts that are breaking which could mean a couple of million plays. Spotify in Sweden is actually used by 20 percent of the population. That’s almost the same impact as traditional radio.
There’s obviously a lot to think about with a service like this—endless meetings.

Do you ever ask yourself what you’ve gotten into?
DK: I was probably dumb and naive because I thought it would be easy to pull off. But it’s been harder than that. The underlying facts are still there: people listen to more music than ever from a bigger group of artists. I also wanted to break piracy, so I’ve had to create a better service than the pirated ones. That’s also how we were able to get our licensing from a lot of companies.

A pointed question: are you jealous of Apple?
DK: I look at it like this. They are one of the best consumer brand companies in the world. There are a lot of things that they do that are very inspirational. ITunes is built around the concept of ownership, which I think will matter less. They are still the giants in the industry. They do a lot of things well but I think that access is the new paradigm and that’s what we are focusing on.

Let’s say someone gets on Spotify on a given Tuesday. Are they going to be able to hear all the new releases coming out that week? Can I hear everything from classical to punk rock?
DK: We’re adding more than 10,000 tracks every day, regardless of year, or how new and old something is. A lot of it is back catalog being added. Today, we have about 25,000 labels signed up. It’s obviously a massive number. Every day I find out about new labels that want to get on. It’s humbling, but very cool. We just added Gramophone if you’re into classical music and for punk rock we carry everything from the Ramones to Rancid and everything in between.

What’s the appeal for advertisers?
DK: The appeal for advertisers is a few things. Spotify is a clean environment. Secondly, the amount of targeting we can do is that you can reach the people who actually matter to you. You can reach them when the mood fits them to be reached. If you listen to Classical, we might do Cadbury Flake adverts–or if you’re listening to punk rock it might be Pepsi or something upbeat. We have more than 400 advertisers and the number is growing every
day. A lot of them are coming back and people are reading their offerings. You can look it up just by searching on Twitter. Country specific ads are already happening.

I’ve heard rumors that Hong Kong tycoon Li Ka Shing has invested a significant amount of money in Spotify. What can you say in response?
DK: What I can tell you is that he is involved in Spotify, but I can’t tell you the specifics.

You’re currently in Europe, but haven’t rolled out in the U.S. or Asia. What are your future plans?
DK: Our big priority is the U.S. and we are publically stating that. We are a start up and we are hugely interested in all the big markets in Asia. However,
I can’t really say when we’ll get there. I can’t mention a date, but when we have the resources to enter more markes, we will for sure. I still hope that it could be this year, but realistically it will probably be next year.

How will you work with mobile phones and phone companies?
DK: We have a lot of great relationships with a lot of big carriers around the world. They offer the Spotify services and because we work with handsets, they can load people’s music libraries right onto people’s handsets and the customer in the end might get a subsidized service and get billed from the carrier as well. It will be itemized on the phone bill.

I’ve read that you have future plans to go beyond music and get into films and books, which people can access. What’s your response?
DK: It’s early days. I don’t want to speak too soon. It’s an interesting concept but we have enough of a challenge tackling the music industry and showing them why the access model is a great thing.

So, should I get rid of the thousands of CDs I have?
DK: Hopefully quite soon. When we get to Hong Kong you can. People have a lot of hard drives at home but I think we’re moving more towards online storage. Just look at email and Google’s Gmail. You can move your music library to the cloud as well. With access to Spotify and your 3,000 CDs, you might have 7,000 or 8,000 albums, which you might organize through us. Then there might be other genres or French acts, for example, or a favorite band that can be added based on what other people like. Personally, I live in London right now. I don’t have any physical CDs there. I don’t even have a CD collection. I do have a vinyl player and a large record collection, but that’s
because I really like the feel and sound. Most of my collection sits in Spotify and when I’m on the road, my entire collection is with me, so I don’t actually need it.
You’ve been quoted as saying that the music industry could be a 40-50 billion U.S. dollar industry. How?
DK: The first thing–if you look at all the transactions—and if you take everything that happens illegally, we’re probably talking two trillion illegal downloads. The entire amount of legal downloads is five billion. What if we could make it 20 trillion because it’s easier to share? Even if we monetize a fraction of those transactions you would end up with a much bigger industry. Then, factor in long term that there will be a convergence between the radio
and the traditional music industry. It will melt into one and more power will be put into the hands of the artist as to what to do with it. We want to be a platform for the artist so that we can figure out new ways in ways that I’m not sure we understand yet. This could be selling merchandise or buying tickets to a show or whatever it can be.

So there are possibilities that haven’t even been conceived or worked out yet.
DK: Absolutely…I don’t think it’s an easy answer. As an artist you have to be much more aware that it’s not just creating an album and you’re done. You have to do the touring, the merchandising, extra tracks, videos and interact with your fans. Those are the artists that will be very successful in the future.

What excites you about the possibilities for Asia?
DK: The Asian market is a super market because it’s so different to what’s happening in the western world. We’re starting from a different point. We don’t have to defend already existing models and can focus on creating a new industry. Take India for example. India has a massive ringtones business. But it’s different because it’s driven by resellers. In the US, it’s driven by carriers. There are 3,000 resellers selling ringtones in a store and if you like it they
can transfer the ringtone directly to you. In China, the number one thing they do on the Internet is music. Imagine the possibilities of building a platform around that. I don’t know what the best way to monetize that is but for some it will be live shows, advertising, subscription music and ala carte.

What are your concerns regarding Spotify and possible musical censorship in China?
DK: We do care a bit about it, but at the same time I know too little to worry about it right now.

A personal question: what are the greatest lessons you have learned through your businesses?
DK: It’s a hard question. What I’ve learned with the web and the world being so open and accessible is that the number one thing is probably transparency and openness. Be honest about who you are and what you want to do. There are millions of people who will think the way you do and will support you. That’s truly amazing to see—that people support people through the Internet via people they don’t even know. I think it all boils down to it being a very
good place to be. If you’re open and honest and don’t take shortcuts, things will work well for me and everyone else who takes the same approach. That’s one of the more personal lessons that I’ve learned.

You’ve talked about the social interactivity of Spotify. How do you envision this working?
DK: I can just mention again that photos are a massive thing, videos and games are massive, but today, music isn’t massive legally and it should be. Once you make it truly social—that people can share it legally, free and fast it will probably become the most powerful social object there is. It’s truly universal. If you send me a Chinese track I will probably pick up the feeling and possibly relate to it. I have Canadian and American friends who might not know what Swedish bands are singing about but they like the tone or melody.
It’s more personal than a photo—and a Madonna track can be played in Japan and people can know who she is and relate to it…and that’s true for the rest of the world too.

What are you personally listening to at the moment?
DK: Right now, I’m rediscovering a lot of Rufus Wainright. He’s probably my number one pick. As for my favorite albums, it’s a long list. My two favorite bands are not on Spotify yet: the Beatles and Led Zeppelin. I’m more of a classic rock guy: everyone from Zeppelin to the Clash, Who, Guns n Roses, that kind of stuff.

Thank you for your time and we look forward to seeing you at Music Matters.
DK: Thank you.

Roman Pitehoff

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