Shortly after the deed was signed, Daniel and Sofia hired architects and builders to start renovations. Scaffolding was erected around the grand old building, but soon the work had ceased. Gossip intensified when Daniel and Sofia, in early 2019, bought an adjacent house for another $2 million. Would Daniel Ek, like Mark Zuckerberg in Palo Alto, start to buy up all of the adjoining properties?
Months later, the neighbors learned that unexpected flaws and water damage had convinced the Eks that they may as well demolish what locals saw as a landmark building. What now ensued was an age-old conflict between old and new money—or in this case, between millionaires and billionaires—a story pounced upon by the news media.
Many of Djursholm’s residents felt strongly about preserving the area’s character. The neighborhood had sprung up in the late 19th century, as academics, public-sector officials, and artists moved out of the city and into houses designed by some of Sweden’s and Europe’s most prominent architects. The suburb had gradually become the domain of the ruling class, but there had still been room for middle-class families, such as Sofia Ek’s, to purchase a small home and become part of the community. The more people who moved in and transformed villas to modern mansions, the more homogenous Djursholm would become. Moreover, its cultural heritage would be lost.
Others looked at it from Daniel Ek’s perspective. They argued that, unlike other wildly successful entrepreneurs like the Skype co-founder Niklas Zennström and IKEA’s Ingvar Kamprad, Daniel Ek should be praised for choosing to remain in Sweden instead of moving abroad. He was still paying local taxes and contributing to the community. It was only fair that he do whatever he pleased with his new home.
The Spotify founder enlisted a small army of experts who argued that the house could be torn down while abiding by local building regulations. His consultants stated that the house had been erected in what was termed an “American” style in 1893, but later renovated with plenty of Art Deco details. By now, they said, the house was an architectural patchwork that had lost its cultural value. Yet the local politicians were not convinced.
“This is a landmark,” said Claes Breitholtz, chairman of the local housing board, which struck down the application. “It is big and magnificent and has once been an extremely beautiful house.”
Various publications would cover Daniel’s proposed demolition. Stockholm residents would discuss it by the metaphorical water cooler, which in Sweden was more likely to be the coffee machine.
The villa in Djursholm wasn’t Daniel’s only headache. He was also looking to upgrade his summer house in the Stockholm archipelago. Among other things, he wanted to erect a tall, wooden fence to shield the property from onlookers. But that application was also rejected.
“A wooden fence has a restraining and privatizing effect,” the local authority stated in its rejection letter.
On a metaphysical level, Daniel was now clashing with two core Swedish institutions: the “Jante law,” a norm that promoted humility and discouraged boastfulness, and an actual law called “Allemansrätten,” or the “right of public access,” a wide-ranging and unique set of rights that let Swedes roam freely in nature. The latter made a fence shielding Daniel’s property from outside view legally questionable.
Famously protective of their private lives, neither Daniel nor Sofia commented on the matter in the press. But Daniel had appealed the decision to stop the demolition. He eventually won that battle and in June 2020, builders started tearing down the house.
Cherry Pie
While Daniel Ek’s dream house was being razed, his business looked more solid than ever. When the American edition of this book was completed in the summer of 2020, nearly three hundred million people listened to Spotify every month. Over half of them did so for free, but the rest were paid subscribers.
At the negotiating table, the record labels often played the role of antagonists, but they knew that Spotify had served their industry well—by returning it to growth and lowering the cost of both distribution and marketing. Anyone looking for proof could check the labels’ own finances.
In June 2020, Warner Music went public in the US. After the first week of trading, its valuation had risen to $16 billion, nearly five times what the company had been valued at in 2012. Just like Universal and Sony Music, Warner had seen its business flourish thanks to an idea in the mind of a twenty-two-year-old Swede.
There were plenty of other beneficiaries. Consumers across the globe clearly favored streaming, even if it meant paying around ten dollars a month. Thousands of employees and investors, from Shenzhen in China to Menlo Park, had become rich off of Daniel Ek’s company. Every employee who spent significant time with Spotify had received stock options which, if they stayed for at least a few years, meant that they could buy a house or begin to invest in a startup of their own. Yet artists were, by and large, still unconvinced and unhappy with their share of the spoils.
In 2019, Spotify and several other streaming services had appealed a decision by the US Copyright Royalty Board to raise songwriters’ payouts from streaming gradually, over the next handful of years. The appeal immediately drew criticism from the music community.
“Jeff Bezos is probably the world’s richest man and Daniel Ek is on his way. They have created fantastic products, so why not support yet another great creation: songwriting,” Kenny MacPherson, founder of the independent company Big Deal Music, told the press.
Apple—the only big streaming provider that did not appeal the decision—once again seized the chance to side with creators.
“Underneath the rhetoric, Spotify’s aim is to make more money off others’ work,” Apple wrote in a statement, which partly served as a response to Spotify’s antitrust complaint in Brussels.
“And it’s not just the App Store that they’re trying to squeeze—it’s also artists, musicians, and songwriters.”
Fake ID
Another point of contention was the debate over fake or manipulated streams, a practice that diverted payouts from honest participants to those trying to game the system. The problem ranged from artists encouraging fans to stream tracks on repeat without listening, to people paying bot farms to stream music and help songs climb the Spotify charts.
One example surfaced in January 2020, when the pop star Justin Bieber allegedly republished a fan post on Instagram that detailed how to boost his new single, “Yummy.”
“Create a playlist with Yummy on repeat and stream it. Don’t mute it! Play it at low volume, let it play while you sleep,” the post read.
The chatter about manipulated streams intensified, especially in Sweden. When a source in the music industry started claiming that the problem could be costing hundreds of millions of dollars per year, Spotify finally put its foot down.
“There is a lot of rumor and speculation out there,” Spotify’s Nordic director Jenny Hermanson told Dagens industri.
She then claimed that less than one percent of Spotify’s streams had been manipulated during the fourth quarter of 2019.
By that time, Spotify was working actively to detect fraudulent behavior, weeding out tracks that had been manipulated and halting royalty payouts where they suspected cheating.
They also pursued the issue in court, such as when they countersued Sosa Entertainment in a legal battle over what Spotify described as a scheme involving “hundreds of millions of fraudulent streams.”
Love Is an Open Door
By 2020, Daniel Ek had mastered the art of answering questions about Spotify’s podcast investments and user engagement. When he yielded to his new CFO—the jovial Paul Vogel, the former head of investor relations—it was more out of politeness than any uncertainty over the financials. He was also giving more individual interviews to news outlets.
In May, Daniel sat down for a lengthy interview with Emily Chang of Bloomberg TV. Speaking over video link, in a black t-shirt and a pair of white AirPods, Daniel gave one of his most candid media appearances to date. He t
ouched on topics ranging from the ongoing pandemic to the kids’ playlist “Frozen and Trolls,” which he claimed to know all the lyrics to.
The conversation also covered many of the highlights of Spotify’s fourteen-year history, from streaming pioneer to becoming the music industry’s most important source of revenue. Its payouts since launch now totaled $16.5 billion.
Chang also delved into the thorny issue of Spotify’s antitrust complaint against Apple. Daniel dug in, prefacing his answer by saying that the process was ongoing and that many details remained secret.
“Obviously, long term, we do expect Apple to open up,” he said, speaking freely about his rival.
Soon, the European Commission would open a formal antitrust investigation into the rules of the App Store. During the interview, Daniel was able to list a number of encouraging signs, such as Apple allowing Spotify to use Siri for voice support and, more recently, to build products for Apple TV and the Apple Watch. Spotify would later be bolstered in their claims as the maker of Fortnite, Epic Games, rebelled against the payment terms in the App Store, launching their own legal fight with Apple.
“It’s moving in the right direction, but we still have many many steps to go before we consider this an open and fair platform,” Daniel said during the interview.
The conversation then turned to a touchy topic: Spotify’s efforts in the video space. The reporting on Daniel’s ambitious TV project that was scrapped in 2014 had already been published in an early Swedish edition of this book. An excerpt had followed in the US trade publication Variety.
“In all honesty, Emily, we experimented a lot when it came to video a few years ago. I think at the time it was less clear how the landscape of video would play out. You know, are we going to see long-form content, would we see short-form content like YouTube, or would we see something in between, and what would that look like?”
He then attempted to summarize the lessons learned from the secretive Magneto project.
“We pursued that opportunity, learned a bit. What we really ended up with was realizing that our key strategy is really around owning background moments, around owning, really, audio. It actually informed us, more than anything else, about the strategy on doubling down on audio.”
In hindsight, Daniel seemed to view the tens of millions of dollars squandered as a small price to pay.
“I’m very happy with that today, when you look at a lot of these other media companies that have to invest billions of dollars in order to even be competitive with the likes of Netflix or YouTube.”
Chang then asked if the Spotify CEO would consider selling his company, perhaps to Netflix? Daniel said no, adding that he was excited to be standing at the crossroads of an enormous consumer shift.
“The journey that Spotify is on is not just about entertaining people, it’s about informing and educating them as well.”
Shapeshifter
In 2020, Daniel Ek seemed better prepared for his mission than ever before. He continued to close the gap between what he had always been comfortable doing—making bold bets, recruiting team members, recognizing when he needed to pragmatically cede to the record labels—and what he had to do to survive as CEO: navigate spats with the artist community, fire underperforming lieutenants, and communicate clearly and powerfully in interviews and conference calls.
Perhaps Daniel’s greatest professional achievement was that he never stopped learning from the people he surrounded himself with. He had come to embody the traits of countless associates and former coworkers.
Martin Lorentzon had taught him how to keep the faith and stay the course; his friend Shakil Khan how to navigate social situations. His many lawyers and negotiators had helped him weed his way through the music industry, while Mark Zuckerberg had shown him how to think big and bold.
Daniel had come further than he had ever dreamed. He was now competing with some of the world’s largest companies, which also meant he could not rest on his laurels.
Spotify remained vulnerable in many areas. YouTube Music offered a far superior search function, and a wide catalogue of music videos. Apple was growing in many directions, and would by the fall provoke Spotify by bundling their music offering with other services such as video, cloud storage and gaming.
For a time, it looked as though companies like Amazon might keep lowering the price of streamed music. A number of Spotify’s challengers ran profits deep enough to keep subsidizing a loss-making music service. But with Spotify expanding into exclusive podcast content, it looked more likely that the company would raise its prices, at least in wealthier markets. The record labels expected as much, and Warner Music even mentioned it in their filing to go public in the spring of 2020.
Apple remained Spotify’s archrival, as had been the case when Steve Jobs ruled digital music through iTunes. Yet Daniel was not only up against traditional streaming providers. The interactive video and music app TikTok—used by young people to create and share short-form videos, often incorporating music—posted a reported $3 billion profit for 2019. That was the year its users made the rapper Lil Nas X’s song “Old Town Road” go viral, transforming a meme into an international hit. The country-inspired rap track would later top the Billboard singles chart longer than any other song to date.
Many had begun to wonder what would happen if TikTok were to sign artists directly. It was not hard to imagine how a social media app with billions of users, which had already made huge strides in artificial intelligence, could start competing for talent with the labels, and challenge companies like Spotify, Apple, and Amazon on distribution.
“If the streaming services don’t find a way to pivot and expand what they are, they’ll be in trouble,” as one industry veteran put it in early summer 2020.
Despite Spotify’s early partnership with Facebook, Daniel had never fully capitalized on basic social features such as likes, comments, and shares. But he hadn’t let go of the idea. Apple Music seemed in even worse shape, having let its original “Connect” feature fizzle out.
“They need to build tools for the artists to communicate with the fans directly if they’re ever going to make any money. If you don’t do that, you’ll have nothing unique, and you’ll go the way of iTunes,” the industry veteran said.
In India, the challenge from TikTok’s parent company, ByteDance, had already arrived. Its new streaming service, Resso, had a freemium business model and strong social features. The labels and publishers were all onboard, with the notable exception of Universal Music—perhaps because Tencent, a ByteDance competitor and Spotify partner, now held a 10 percent stake in Universal. New alliances were emerging in Asia, where a majority of the world’s music consumers lived.
Chinese tech companies were under pressure. In the summer of 2020, the Indian government banned TikTok and fifty-eight other Chinese apps from operating in the country following a border dispute and concerns over security and privacy. In early August, as this book was being completed, President Donald Trump threatened to ban TikTok in the US, leading Microsoft and other tech giants into talks to acquire or invest in the social network’s US operations.
Spotify’s ownership ties to Tencent appeared more important than ever. Tencent Music, which was now trading on the New York Stock Exchange, had historically earned most of its revenue from interactive apps. One example was WeSing, a virtual karaoke service where users could donate money to artists doing live streams or pay influencers to sing a song just for them. Social interactions could prove key to engaging young listeners in countries like South Africa and Japan, and eventually in South Korea, where Spotify had yet to enter.
Spotify had passed on an indicative offer to be acquired by Tencent, yet a merger between the two remained a possibility. The tectonic plates of the music world were shifting. For Daniel, it was all about positioning Spotify before the next big rumble.
Pod Save America
In mid-May 2020, a few weeks after his interview with Bloomberg TV, Da
niel Ek took Spotify’s podcast strategy to a new level, signing one of the most popular titles in the US.
The deal, reportedly worth more than $100 million, meant that his streaming service would soon become the only place listeners could find the Joe Rogan Experience, which had previously built a massive following on YouTube. Perhaps most famously, Joe Rogan had hosted Tesla CEO Elon Musk, who smoked marijuana live on air to the ire of some of his shareholders.
Following the announcement, Spotify’s stock price shot up by eight percent on the New York Stock Exchange, bringing its market value to well over $30 billion. The next day, the share price rose another eight percent, and Spotify climbed past the $35 billion mark.
The same sequence would soon repeat itself. In June, Spotify signed exclusive podcasting deals with both Kim Kardashian West and DC Comics, with its stellar roster of superheroes like Batman and Wonder Woman. Spotify’s stock climbed to new heights. By early July, the company was worth over $50 billion, a figure that had doubled in the space of a few months.
Spotify’s transition into a media company—a kind of MTV for the digital age, the type of service Jimmy Iovine had once envisioned—was accelerating. And, finally, Wall Street was rewarding them for it. In the nascent podcasting world, there was still time for Spotify to form a Netflix-style service for podcasts, signing exclusive titles and producing their own.
Yet not everyone was convinced. Some stock analysts objected that Spotify was paying a lot of money for companies and content that would do little to improve their bottom line. In addition, the deal with Joe Rogan drew the kind of criticism from artists that had become a permanent fixture for Daniel.
“Spotify makes its name and builds its brand off music, which allows them to buy and license content from other creators,” the rapper Phonte wrote on Twitter. “Meanwhile, the musicians who built the platform get paid micropennies.”
In conference calls, Daniel defended his new strategy. A catalogue of podcasts within sports, true crime, and entertainment would help extend the amount of time users spent within the app. That would, in turn, lead to more paid subscribers, which would earn Spotify and the music industry more money. Embedding ads in an expanding catalogue of podcasts could also help Spotify grow their advertising revenues.
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