A REVIEW OF

The Spotify Play

How CEO and Founder Daniel Ek Beat
Apple, Google, and Amazon in the Race
for Audio Dominance
Sven Carlsson and Jonas Leijonhufvud • Diversion Books • 2021

Streaming Money
by David Meyer
Swedish tech journalists Sven Carlsson and Jonas Leijonhufvud tell the warts-
and-all saga of Spotify’s long hard climb from a tech entrepreneurs’ fantasy
to a $35 billion valuation.

Spotify rose to prominence despite long odds, as Swedish tech journalists Sven
Carlsson and Jonas Leijonhufvud explain in telling the company’s saga. Only
through dogged perseverance did the scrappy firm – which lets users listen to
music for free – convince the giants of the music industry to grant it song
licenses. And only through stubbornness did Spotify’s CEO Daniel Ek stiff-arm
increasingly lucrative buyout offers from Microsoft, Google and Tencent. The
details of Ek’s ceaseless efforts are both exhausting and inspiring.

Two Swedish Entrepreneurs

Martin Lorentzon and Daniel Ek were ambitious techies. Ek, who became the face
of Spotify, loved technology and music, where Napster shaped his tastes and his
view of the internet.

Spotify was like a foreign vermin threatening to invade Apple’s walled garden.SVEN
CARLSSON AND JONAS LEIJONHUFVUD
In his early 20s, Ek sold an advertising tech company for $1 million. He conceived
of Spotify as a torrent-based streaming service that would provide music and
possibly video to users for free, funded by advertising. He worked with Lorentzon,
who was older and more experienced.

Spotify’s initial songs came from The Pirate Bay, a website on which users shared
music they copied and uploaded illegally.

Apple’s iTunes Music

Spotify launched three years after Steve Jobs unveiled the concept of iTunes. When
iPhones arrived, Spotify was available only on desktops. Record labels rejected
Spotify’s proposal to let users listen for free and to pay for rights by sharing ad
revenue.To the music industry, free streaming equaled theft.

Daniel Ek was now acutely aware that Spotify’s money was running out.SVEN
CARLSSON AND JONAS LEIJONHUFVUD
Ek loaned tens of thousands of dollars of his personal funds to Spotify, which
launched in 2008 with record company deals that allowed it to stream music in
Scandinavia and other corners of Northern Europe. A $12 million fundraising
round set Spotify’s value at $86 million.

Precarious Financial Model

Spotify promised 55% of its revenues to record companies and 15% to music
publishers who represented songwriters. In theory, Spotify could keep the
remaining 30%. But for years, Spotify paid more to the music industry than it
generated in revenues. The company expected that paying customers would
become only a fraction of its subscribers. The rest – up to 98% of listeners – would
use the free version that featured ad sales.

If enough big names boycotted Spotify, the service could quickly become
irrelevant.SVEN CARLSSON AND JONAS LEIJONHUFVUD
In 2009, Spotify launched a mobile version, but it had no US agreement for the
rights to songs and no presence in Apple’s App Store.

Sketchy Investors

As Spotify tried to expand in the United States, Apple dangled a much more
lucrative deal to music publishers than Spotify could offer.

Spotify’s business model relied on volume.SVEN CARLSSON AND JONAS

LEIJONHUFVUD
In 2010, Spotify reached five million users, though it was still losing money. Spotify
raised $50 million in 2010, but its new investors included Russian oligarch Alisher
Usmanov, famous for his cozy relationship with Vladimir Putin, and Tencent, which
operated under the thumb of the Chinese government.

Tough Negotiations

In certain regions, Spotify limited free users to 20 hours of music a month and
allowed only five repeat plays of any song. Apple urged music companies not to
allow Spotify into the US market.

Daniel Ek’s partnership with Facebook brought seven million new listeners to Spotify
within a few months.SVEN CARLSSON AND JONAS LEIJONHUFVUD
Spotify signed a deal in 2011 to stream Sony Music content in the United States,
and Sony received a big stake in Spotify. Universal would demand 10% of Spotify’s
shares for access to its American market, but Spotify negotiated a less-onerous
deal.

Mark Zuckerberg wanted to make Facebook the only place where users could have
access to their Spotify accounts. Facebook raised Spotify’s profile, but users
weren’t happy that their Facebook friends could see their musical choices.

Pandora and Google

Pandora had 36 million users and a larger valuation than Spotify, which needed to
launch a radio station to play related selections for users who played one song.

To fulfill his promise to investors of large-scale success in the United States, Daniel Ek
needed to offer more than a searchable music database.SVEN CARLSSON AND
JONAS LEIJONHUFVUD
Ek considered a buyout offer from Google, but he wanted at least $8 billion; Google
stalled at $5 billion.

Growing Pains

By 2014, Spotify grew by 50%, but most of its new subscribers didn’t pay. Spotify
was losing money because more than 80% of its revenues went to record
companies and songwriters.

Spotify’s free tier had become something of a liability.SVEN CARLOSSON AND

JONAS LEIJONHUFVUD
By 2016, streaming was the biggest source of revenue for the US music industry.
Ek felt loyalty to Sweden, but chafed at its steep taxes on stock options. He shifted
the company’s growth to New York City, where Spotify received $11 million in rent
reductions for creating 1,000 jobs.

Artists

In 2016, Beyoncé, Rihanna, Drake, Kanye West and Frank Ocean released
blockbuster albums. None were available on Spotify. Then, in 2017, Spotify struck
a deal with Universal, limiting Spotify’s paying subscribers to only two weeks of
access to new music from Drake and Taylor Swift.

The sheer magnitude of Spotify’s operation belied its CEO’s humble talk during
interviews.SVEN CARLSSON AND JONAS LEIJONHUFVUD
Meanwhile, Spotify and Tencent agreed to swap shares, and Tencent relieved
Spotify of some debt.

In 2017, Spotify pioneered direct public offerings, which let Spotify bypass
investment banks and sell shares directly to investors, meaning there was no
publicly stated price range for Spotify shares. The company went public in 2018,
and its opening price of $165.90 a share set Spotify’s value at nearly $30 billion.
The US record labels made out well in the IPO – their shares were worth $3 billion.

In the Black

In May 2020, Spotify paid more than $100 million for The Joe Rogan Experience, a
podcast with a huge fan base on YouTube.

Fourteen years after its founding, Spotify was still wrestling with a business built on
low margins, and investors were still asking how Daniel might bring them up
further.SVEN CARLSSON AND JONAS LEIJONHUFVUD
Investors pushed Spotify’s valuation past $35 billion as the company edged toward
profitability. Spotify reported four quarters in the black during its first two years of
public trading.

Review

Given their irreverent, bemused attitude, Sven Carlsson and Jonas Leijonhufvud
clearly enjoy reporting the saga of Martin Lorentzon and Daniel Ek. Especially Ek.
His combination of shambling, relentless hustle and willingness to goad the biggest
entertainment companies in the world make him the authors’ hero, and quite likely
yours as well. The authors have a rollicking good time without losing sight of the
cold, cunning business that brought Lorentzon and Ek their fortune. Carlsson and
Leijonhufvud seem especially impressed that Ek turned down billions in search of
more billions. A fun, eye-opening read.

Works on similar themes include Create the Future by Jeremy Gutsche; Zucked by
Roger McNamee; and The Four by Scott Galloway.

David Meyer
David N Meyer is a content editor at getAbstract and author of The 100 Best Films To
Rent You've Never Heard Of, Twenty Thousand Roads: The Ballad of Gram Parsons and His
Cosmic American Music, The Bee Gees: The Biography, and other books. You can find his
essays on film and music at davidnmeyer.com