If anyone thought Apple Music was a threat to Spotify’s longevity, CEO Daniel Ek wasn’t one of them. He figures Cupertino has done his company a big favor.
Ek was in Toronto as part of a media event at Rogers headquarters on Sept. 14 with that company’s CEO, Guy Laurence, promoting the music-focused partnership between them. The conversation with the small group of reporters on hand quickly shifted to the launch of Apple Music and the perceived threat it may pose to Spotify’s long-term viability.
To the contrary, said Ek, “Apple has validated the thing we said 10 years ago, which is that the world is moving to streaming.” Moreover, he views Apple’s launch of a streaming service as lending further credence to his assessment that owning music through downloading is becoming less and less important to a wider subset of consumers.
Apple lumps iTunes Store sales together, opting not to break down how much of the revenue comes from music or apps, video, books, and other content it makes available. Last year, the Wall Street Journal reported that music sales may have dropped by up to 14% from Jan. 1, 2014 to October. There are no figures to indicate whether that trend continued into 2015.
Either way, Ek pointedly noted that Apple Music has been a boon to Spotify, having added new users at a faster clip since it launched back in June. “We keep setting new records week to week,” he said, without specifying any numbers. “It’s getting easier and easier to sign people up.”
If anything, Ek said Apple and Spotify have the same goal in mind: growing the music industry. The global recording industry has plummeted in the last 15 years from a high of $45 billion in revenue in 2000, down to $15 billion today. “I don’t think that’s what the music industry’s true value is, and we want to pay more to artists.”
The number may seem high, but Ek feels it’s a raindrop compared to the wider entertainment business. “Music is only 1% of the revenue compared to the TV and movie businesses, yet it is consumed 50% more. That doesn’t make sense to me, and so everything we do is meant to strengthen the core business in music,” he said, again, without referencing the numbers.
Spotify also lumps together its users, which now totals 75 million in 58 countries. Only 20 million of those are premium subscribers, whose revenue is widely understood to better compensate artists. It was the freemium model that led to pop star Taylor Swift’s public spat with Spotify over the lower ad-supported royalties, and subsequently, Jay-Z’s hyped and much-publicized takeover and rebranding of Tidal, a rival streaming service that not only offers a Hi-Fi audio tier, but also purports to pay more to artists.
The freemium model isn’t going to be tucked away anytime soon (if ever), according to Ek, and the main reason is because streaming music is going to be about volume. He reckons that if almost all of the world’s population is armed with smartphones in the next few years, the potential of billions of users streaming music should make compensation far more equitable for the music industry as a whole. Where album sales were once measured in the millions, streams will be measured in the billions, he added.
That means Spotify is focusing entirely on growth over profitability. “It would be a mistake for us to pull back now from what we’ve been doing. Spotify today is the second-biggest revenue generator for the entire global music industry, and we’re the fastest-growing one, and the reason why we are in those two positions is because of our freemium strategy,” he said.
Apple will not offer a free tier for its streaming service, though does open up the gates with a 90-day free trial to try it out. Spotify Premium offers a 30-day free trial.
Attempting to diversify, Spotify has added streaming video, podcasts, contextual music recommendations and ‘Running,’ tracks aimed at the fitness crowd. The company has also lined up a number of partnerships that include Sony, Ford, BMW, Uber, Beatport, Starbucks, select wireless carriers, and various content producers.
“When you look at this gigantic global opportunity, it’s our mission to grow the entire music industry,” he said. “People now accept the streaming future.”
