The Story of Spotify

The Story of Spotify

A note about the exclusive podcast content, we filmed it but unfortunately there was a major audio issue so we couldn’t upload it. I’ve been away for 3 weeks (bet you didn’t notice) so it wasn’t feasible to re-record it.

Spotify is a massive titan in the music industry, but how did they get so large and how did the company start?

hi
welcome to another episode of cold
fusion
so i’m a musician and independent artist
so music is something that’s pretty
close to me
before spotify a small artist would have
a very hard time distributing music to
such a wide audience for free but
spotify has changed all of that the
company started out as a simple enough
idea but managed to succeed with so many
others failed
spotify is now so influential that they
basically have the power to decide who
makes it in the music industry so how
did they become so successful and
moreover how did an 18 year old kid from
sweden do all of
[Applause]
fusion this
our spotify story begins in 1999. an 18
year old kid by the name of daniel eck
was living at home with his parents in
sweden
during daily life
daniel’s parents began to notice
something strange the young man kept
bringing in large expensive tvs his
parents thought there’s no way our son
could afford this has our dear son turn
to a life of crime
in reality it was something a little
different see when daniel was 13 around
1994 he had recognized the potential of
creating websites for the fledgling
internet so he started a small home
business making websites for clients
he charged his first client a hundred
dollars but then charged the next client
two hundred dollars the price was still
below the industry average so as demand
for internet websites began to explode
soon daniel could charge five thousand
dollars per website
to help expand the business daniel
recruited students from his computing
class he successfully bribed them with
the promise of video games
his earnings would eventually reach 50
000 per month and by age 18 he was
managing a team of 25
his parents only noticed his earnings
when he started bringing home those
large tvs
as time progressed the internet began to
see the growth of downloading music
illegally
napster is enabling millions of people
to get free music with just a few
keystrokes at their computers you’re
talking about revolutionizing
the way we use computers and how we use
the internet oh absolutionizing
absolutely i mean it and we’re just
beginning absolutely
because you just started this two years
ago right
since then the world has changed for the
goliaths of the record industry sony
universal and others
the record companies say they will lose
billions in sales because fans are
getting their music for free
and they want fanning stopped
after napster got shut down in 2001
other illegal sites such as limewire
kazaar and e donkey 2000 took its place
and for more obscure tracks one could
turn to soul seek to get their fix
observing the trend daniel realized
something later in an interview he
states his realization quote you can
never legislate away piracy laws can
definitely help but it doesn’t take away
the problem
the only way to solve the problem was to
create a service that’s better than
privacy and at the same time compensates
the music industry
this idea was the basis for spotify
after starting up some other companies
and serving as the ceo of utorrent until
2006 daniel had made enough money and he
thought of retiring but his
entrepreneurial spirit drove him to do
something else
during his entrepreneurial stints daniel
would meet martin lorenzon they bonded
over both lacking purpose after amassing
massive amounts of wealth unexpectedly
in 2006 while they were staying at a
flat in stockholm sweden there were
brainstorming ideas
as they worked they would listen to
music on their multimedia computer
in 2006 the experience was less than
ideal internet radio hardly existed and
the listening experience of playing any
track that they wanted spontaneously was
frustrating to say the least
then an idea hit daniel instead of
leaving the concept of a legal streaming
service to sit dormant in his head all
these years he could just go right out
there and build it
quote we pretty much spent all of the
autumn discussing a ton of ideas i
remember however that we sat around my
media machine quite a lot and thought it
was cumbersome to get content despite
the technology having been around since
at least 2000 i think that’s why we got
stuck on the idea of spotify
[Music]
okay so they had this idea but what were
they going to call it
as the two founders were sitting in
different rooms one day and exchanging
different idea names for the brand they
would shout back and forth then martin
shouted a brand name to daniel which was
misheard as spotify
as soon as he heard the name or rather
misheard it daniel googled it and once
he found no matching results they
registered that for the name of their
company immediately
2006 was an interesting time for music
the music industry itself was struggling
sales of physical media such as cds had
fallen considerably over the past few
years and the record labels themselves
seem to have no solution
[Music]
by 2006 music industry revenue had
fallen from 25.2 billion in 1999 to just
19.4 billion
the real brilliance of spotify’s early
core idea was market segmentation they
successfully identified and carved out a
niche between two extremes in the music
market
at one end were services like napster
which were hugely popular but illegal at
the other end was apple’s itunes which
sold songs individually for as much as
two dollars per track
the large area in between these two
extremes is where spotify would succeed
the pair wanted to make their music
listening experience better than both of
these for napster and similar services
it took minutes to download a single
track and pirated tracks were a lack of
the draw when it came to audio quality
not to mention that torrenting sites
were also infested with malware and
viruses
around this time daniel would state
quote i really believe that if we create
the right product which is better than
piracy people will come
on top of this market strategy it was
the user experience that made spotify an
instant hit
audio quality would be high but
dependable
there would be instant playback and the
interface would be snappy
a seamless experience was their goal and
the pair got to work to assemble a
spotify prototype
now with some staff at their disposal
the new spotify engineering team worked
tirelessly to build a functional
prototype of spotify as quickly as they
could
daniel was obsessed with making spotify
lightweight and as responsive as
possible they couldn’t be a delay of any
kind more than 250 milliseconds
daniel wanted spotify users to feel as
if they had every single song ever
recorded right to their hard drives
spotify had to be so good that users
would happily pay 10 a month even though
they could easily download torrents of
their favorite music for free
it wasn’t all smooth sailing though the
company spent years burning through cash
while trying to secure music licenses
rather than acquiring global riots which
would be way too expensive spotify
decided to stay focused on europe
daniel had some trouble with the label
executives on the idea but once the
executive saw the product they were
blown away
ironically it took a custom build of the
program loaded with pirated tracks to
finally convince the record labels to
sign up the interface though was slick
and worked without a hitch so record
labels which were losing sales at the
time decided to play ball
after seeing the demo per sundan of
universal music sweden would state quote
this can’t be true it can’t be this good
it’s almost funny to look back on what a
revolution this was back in the 2000s
the service went live on an invitation
only membership basis in scandinavia
france spain and the uk in 2008.
the service expanded quickly but
international music licensed
negotiations pushed the release date
back for america
spotify only made its way to the us in
2011 and it almost meant the end of the
company’s international debut before it
even started
the big american labels like emi sony
universal and warner music wanted to
force a paid subscription model from the
beginning instead of a freemium model
like spotify wanted
without the first deals from the labels
spotify wouldn’t have survived
daniel offered the companies a majority
share in spotify stock it was just
enough to sweeten the deal
with falling sales the record labels
needed a way to get their music into the
ears of young consumers if the record
labels didn’t take this deal pirate
music would eat their profits
while they were focused on declining cd
sales the opportunity for digital music
distribution was staring them right in
the face but they couldn’t see it until
spotify forced them to
once the major labels were on board
spotify managed to receive major
investment from banks such as goldman
sachs and after this the rest was
history
[Music]
today spotify has around 381 million
active users monthly of which 172
million are premium users the platform
has over 82 million songs
today songs are discovered on viral tick
tocks but streamed in their entirety on
spotify spotify has also changed the way
music is consumed people don’t listen to
albums in order anymore it’s very common
for people to be exposed to different
songs through playlists playlists that
are segmented by mood and theme and
these playlists can really give a boost
to artists
with countless billions of streams under
their belt in a twist if they choose
spotify can bump whatever music they
want to the top of the algorithm
essentially instead of music labels they
now have the power over the modern music
industry landscape
and with this power also comes the side
effect of censorship but more on this
later
spotify is facing opposition from many
artists they see the platform as an
unwanted middleman
while some artists feel that the payout
from spotify is inadequate some others
feel that the platform is not supporting
enough for emerging artists taylor swift
was one of the first to speak out
publicly she complained about the low
payouts for artists and called the whole
platform an experiment
quote i’m not willing to contribute my
life’s work to an experiment that i
don’t feel fairly compensates the
writers producers artists and creators
of this music she subsequently took her
music off the platform for three years
before putting it back on
other artists have done the same but
they always come back to spotify and
this is a testament to just how much
power the platform has
if you’re an artist that actually wants
to be seen and make decent money spotify
is essentially the place that you have
to be on
so how much do people earn on spotify
a recent comparison of rates found that
to earn one dollar on spotify you need
229 streams for apple music this is 136
streams and tidal pays the best at just
80 streams and the worst youtube music
570 streams
censorship has also been a point of
contention for those following the
spotify controversies the most prolific
of which happened with joe rogan
in 2021 joe rogan signed a 100 million
deal with the company to be exclusive on
the platform
after some controversial covert episodes
spotify deleted a bunch of joe rogan
episodes and put disclaimers on many
others
it most likely was an effort to keep
external investors happy and what else
can be said
money talks
speaking of money spotify has been going
on a buying spree mainly to boost
podcasting on the platform they’ve
acquired both content and technology
firms
recent acquisitions include gimlet media
the ringer anchor pods and megaphone
essentially they’re playing both the
demand and supply side they provide and
acquire podcasters and podcast networks
and provide the technology to support
that the goal is to turbo charge its
market share
and so far it has really worked between
2018 and 2021 spotify grew from 185 000
podcasts to 3.2 million and in october
2021 the company reported that it has
more us listeners than apple podcasts a
significant milestone
in 2022 spotify co-founder daniel eck
has attracted some more attention from
onlookers due to his investments the
most notable is an investment in the
european defense ai startup helsing in
total he pledged 1.2 billion dollars of
his own money to so-called moonshot
projects
in his view europe needs a stronger tech
scene especially in ai this is a far cry
from anything to do with the music
industry
so how was it like for an artist to get
on spotify
well i’ve found that as long as the
audio quality is decent and there’s no
blatantly offensive material it’s pretty
simple these days there are third-party
distributors that basically do it all
for you and upload pending spotify’s
review
my last album nostalgia dreams was plain
sailing just apart from the fact that
someone ripped one of my demos straight
from my second youtube channel and
called it their own and uploaded it to
spotify
to be honest i’m not sure if there’s
many safeguards against stealing music
for me i just managed to reach out to
the guy and he took it down straight
away
if you’re a full-time musician however
as shown by the earlier figures it’s
hard to make a living on spotify maybe
that will change in the future but we’ll
have to wait and see
in total the story of spotify is pretty
insane a couple of successful guys had
an idea and decided to just run with it
whether you love it or hate it spotify
has flipped the music industry on its
head and it’s now an undeniable factor
for any music success
for those of you who follow my music
i’ve just released a new album on
bandcamp called hello world it’ll be on
spotify soon
also there’s going to be an extended
discussion of this topic on my podcast
through the web so check it out i’ll
leave all the links below
anyway that is the story of spotify i
hope you enjoyed it or at least found it
interesting
if you did feel free to have a scroll or
a browse through the channel there’s
plenty of interesting stuff on here
going years back anyway my name is
dagogo and you’ve been watching cold
fusion and i’ll catch you again soon for
the next episode
cheers guys
have a good one
[Music]

Share This- The Story of Spotify

Leave a Reply