Inside Spotify's U.S. Invasion
In February 2010, Daniel Ek told a Los Angeles music conference audience that he’d just signed a U.S. data center contract. His wildly popular Internet music service, Spotify, would likely debut in America in the next month or two.
The music labels had other ideas. A year later, Spotify still had no U.S. service, and Warner Music chief executive Edgar Bronfman publicly trashed the idea. “As far as Warner Music is concerned, [free streaming music services] will not be licensed,” he told the BBC.
But Spotify’s fast-growing user traffic--and resulting royalty payments, over $250 million in total so far--were too hard to ignore.
Warner signed the deal on July 13, 2011, Spotify went live in the U.S. the next day, and since then, the number of paying users worldwide has doubled, to over 3 million. An estimated 20 million people used the site in the past month, according to AppData. Ek declined to comment for this story. In an interview with Sweden’s Dagens Industri, (translation here) he said the company will exceed 6 billion kronor ($840 million) in 2012 revenue, from 1.7 billion kronor ($236 million) in 2011.
It’s been a frenzied decade and a half for Ek, 29, a self-taught coder who grew up in Ragsved, Sweden, just a few miles from Stockholm. At 14, Ek coded local businesses’ websites for $5,000 a pop, and then charged for web hosting services (the servers sat in his bedroom). After dropping out of college, he worked for various websites before starting online marketing company Advertigo, which he sold to Swedish company TradeDoubler. Together with TradeDoubler’s founder, Martin Lorentzon, 42, Ek founded Spotify.
The service let users listen online to practically any song for free. For $5 or $10 a month, users could upgrade and listen without ads, and stream music to their mobile phones or other devices. Spotify was legal, too--the founders signed European licensing deals before launch.
In October 2008, Spotify went online in Scandinavia, France, the UK, and Spain. By 2009, the company was losing $26.5 million annually to costs like royalties and bandwidth, according to a New York Times report, but its streamlined user interface and vast library of songs attracted 6.5 million registered users. The next year Napster founder Sean Parker invested--reportedly about $15 million--through his Founders Fund. In 2011, Spotify received another $100 million in funding at a $1 billion valuation from DST, Kleiner Perkins, and Accel. On May 17, The New York Times reported that the company is on track to raise $220 million, with Goldman Sachs leading a round that would value the company at up to $4 billion.
Today Spotify is one of Europe’s largest music sites, (More than a third of Sweden’s population is registered on the site, according to the company), and has more than 3 million paying subscribers worldwide. Ek has predicted that streaming services like Spotify will generate enough royalty payments to rival iTunes within two years. In addition to targeting the U.S., Ek has his eyes on online music competitors. Spotify now allows developers to make apps for the service, and has a streaming radio station in the works, which could compete with Pandora.
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