With more than 550 million users, Spotify is the number one in music streaming – but when the service launched 15 years ago, it was anything but certain that a European start-up from Sweden would revolutionize the industry.
Apple was the dominant force in the music download business through its iTunes platform. And the industry, which was still deeply affected by the trauma of rampant Internet piracy, was happy to have solid ground under its feet again.
Spotify burst into this phase of newfound stability with the idea of not only using the entire music offering for a monthly fee equivalent to a download album – but even free of charge with restrictions and advertising. For the music industry association IFPI, the launch of the service in October 2008 was worth just one sentence at the very end of the relevant chapter of its annual report.
Legend of a call from Steve Jobs
Spotify’s co-founder and boss Daniel Ek was extremely concerned about headwinds from Apple in the early years. According to a companion at the time, Ek was convinced in 2010 that a caller who said nothing and just breathed into the receiver was none other than Apple boss Steve Jobs himself, according to a book about Spotify a few years ago. It took until 2011 for Spotify to enter the lucrative US market after making deals with music companies. In Europe, the service had just seven million users at the end of 2010.
The free version was a stumbling block from the start. Musicians complained that songs that were often streamed only fetched measly amounts. The industry feared that offering it free would devalue music in people’s eyes. Ek and his managers asserted that they view the free version primarily as a precursor to a premium subscription. Of Spotify’s 551 million users at midyear, 220 million were paying customers.
The spread of smartphones and mobile internet flat rates created the perfect conditions for Spotify. Streaming now brings in the majority of the music industry’s revenue, while downloads and CDs only play a minor role. Apple, which has long relied on its download business, bought Spotify competitor Beats for three billion dollars in 2014 in its most expensive takeover to date in order to build its own streaming offering. The iPhone company does not offer a free version and has not provided any information about the number of users for years. Just like Amazon, where Prime customers get music streaming subscriptions cheaper.
70 percent of the proceeds go back to the industry
The two tech heavyweights have the advantage over Spotify in that they are not dependent on making money with their streaming offerings. For Spotify, meanwhile, it is the core business. And it is structured in such a way that a large part of the music proceeds – around 70 percent – are passed on directly to the industry. How much of this money ends up with the artists depends on their contracts with the music companies. For Spotify, in any case, this means that all costs have to be paid with less than a third of the revenue.
Daniel Ek had the idea of expanding the business with new sources of money that would keep more money in Spotify’s coffers. He stated the goal of making the service the leading platform for all types of audio content. Podcasts started. Ek invested hundreds of millions of dollars in expanding the platform with company acquisitions and exclusive deals with celebrities such as Prince Harry and Meghan Markle as well as popular podcasters such as Joe Rogan. The latter also brought unwanted attention to Spotify with criticism after misleading statements about Covid vaccinations on his show. Veteran star Neil Young pulled his music from Spotify in protest against Rogan.
Prices have increased
The huge investment still has to prove itself. Most exclusive podcasts are unprofitable, the Wall Street Journal recently wrote. Meanwhile, Spotify wants to expand its audiobook business. The balance sheet is currently in the red. In the last quarter alone there was a loss of 302 million euros. Against this background, Spotify followed the price increases of other services – and also took the step in Germany this week. The price of a single subscription increases from 9.99 to 10.99 euros.
