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Spotify

Spotify-Stockholm-HQ

Eighteen months after launching in Australia to headlines such as ‘Artist Anger As Spotify Launches In Australia’ and ‘Does Spotify Have a Future?’, the world’s most visible streaming service appears here to stay. JULIAN TOMPKIN visits Spotify headquarters in Stockholm for a rare glimpse behind the digital curtain of the company that changed the way we listen to music.

The washed-out grey office block seems hardly befitting to headquarter the sort of global internet start-up that makes daily headlines in the world’s more salubrious broadsheets. But, as with the flimsy A4 sheet of paper that so ephemerally bares the company’s distinctive green insignia on the street-level entrance, perceptions can be frustratingly deceiving.

Such was the case when a little Swedish website flicked the switch and went live back in October, 2008. Very few people heralded this a landmark moment of progress. Indeed, after a decade of turbulence and now finally enjoying some stability brought by steady iTunes revenue, many music industry pundits reckoned (or at least quietly prayed) these Swedish upstarts would simply disappear, like Napster and Pressplay before them.

Having recently celebrated five years in business, there is little doubt Spotify – or, more precisely music streaming – is here to stay, and the CD can finally join the cassette in retirement (closely followed by the MP3, as Apple readies for iTunes’ succession to iRadio).

“Streaming was inevitable, it was only a matter of time,” Jonathan Forster says matter-of-factly. A genial Newcastle upon Tyne lad, equally at home talking pints and proxies, Forster was one of founder/CEO Daniel Ek’s first draft picks seven years ago and is now the General Manager for Europe, the company’s most successful territory.

“Dan’s bet was, looking at the way that people are consuming media, are governments really going to throw people off the internet when it’s being used to provision so many services? And looking at the size of the ad industry, look at what Google had done and we’ve seen Facebook do it since – if you could monetise the pirate listening with advertising it would be bigger than the music industry. He thought that it was a matter of time… but there’s no lying, we learnt stacks.”

The first thing Ek – along with fellow founder, Martin Lorentzon – learnt was that the record labels weren’t as turned on by his idea as he was. Having first approached them collectively and individually in 2006, it would take two long and frustrating years before the labels reluctantly handed over the keys to the vault and allowed Spotify to launch in a number of limited European markets, with a ‘see how it goes’ approach.

Although regularly seen keeping company with the de rigueur rollcall of net billionaire acquaintances, like Mark Zuckerberg and Sean Parker (who is a major Spotify investor), Ek isn’t your typical internet millionaire – confident but understated, driven but measured. Having started his first company at 14, Ek was a jaded multimillionaire by his early 20s – unfulfilled by his Ferrari and frustrated with his place in the universe. After heading country for a spell to ponder life’s big questions he emerged in 2006 with the formula for what would become Spotify: “think it, built it, ship it, tweak it.”

The company’s first landmark victory was the resurrection of Sweden’s recorded music industry. As the home of Pirate Bay and with one of the fastest internet speeds in the world and ubiquitous computer ownership, by 2008 Sweden’s recorded music industry was all but decimated by illegal downloading. However, following Spotify’s launch in October the Swedish government trounced Pirate Bay in the courts and then signed off on a Europe-wide anti-piracy policy. Whether white knights or accidental heroes, Spotify were nonetheless in the right place at the right time – the epoch of legal streaming was imminent.

Acknowledging the dramatic turn of events in Sweden and sensing the changing winds, the labels signed up – literally. Reports suggest the three remaining ‘majors’ (Sony, Universal and Warner) collectively own an 18 per cent stake in the private company. Perhaps reassured by Sweden’s reputation for a cool-headed and methodical business culture, the labels have gambled their own survival on Spotify – but Forster says it’d be foolhardy to draw direct parallels between Spotify and those dependable (if not slightly unromantic) paragons of Swedish virtue and prudence, Ikea, Ericsson and Volvo.

“I think we’ve got to be really careful about not overstating our effect on the music industry, but at the same time we’ve got to puffer our chests and not be too Swedish,” he ruminates, sipping on a mug of coffee. “We’ve got over a thousand people working on a digital music problem and that’s probably more than anyone else in the whole world, so we’ve got to have some self belief.”

Self belief is at the epicentre of Spotify’s philosophy; a sort of quiet resolve that, while they may be attempting to reconstruct mountains, it’s all in a 12-hour-day’s work. Taking up four floors in Stockholm’s city centre, the office has the sort of frisky get-up you’d expect of a cutting-edge start-up, but without the brazenness. There’s the usual video gaming room (apparently Ek reigns as FIFA champion), a Metallica pinball machine (Lorentzon holds the record score) but otherwise the sonorous drone of fingers punching keyboards.

Here around 450 unfazed 20-somethings quietly crunch obscure analytic data – like how Spanish streaming nosedives around 1pm (siesta time) while in Finland’s consumption goes into overdrive around 11pm (as the saunas close) – and curate playlists for every conceivable scenario, from homework mood-setting soundtracks to aggregating the hottest yodelling rappers you’ve never heard of.

But one crucial question remains deceptively unanswered: can artists earn a respectable crust from the new business model? Traditional digital sceptics Metallica say yes; digital distribution pioneer Thom Yorke says no. But in reality it depends on your own perception of what is the ‘product’ – the brand or the song? If it’s the brand then Spotify’s a gift of YouTube proportions. If it’s the song then you may well be toast.

Forster avers that Spotify is designed to work at scale. He says the company is on track to pay the industry one billion dollars by the end of this year, but more users will inevitably mean more money for everyone. So what’s the magic tipping point, where streaming royalties supplement lost revenue from CDs and legal downloads? Forster is not saying, but repeatedly references Facebook’s one billion users. However, with only 24 million users in 32 territories, that hallowed figure may appear but a distant apparition for Spotify.

Indeed, there are some – including streaming competitor Pandora’s CFO Mike Herring – who reckon Spotify’s business model is fatally flawed; with the company needing nothing short of divine intervention to survive long-term. Maybe it is another sign of Ek’s cautious Swedish business nous that he chose to set up Spotify HQ next door to a church.

“We’re making investments to support a company that has tens or hundreds of millions of users all over the globe, not just to be a very profitable and loved-by-the-industry Swedish music streaming service, which we could be today,” Forster says, admitting that user numbers remain frustratingly low. “It’s hard, and it’s always been hard to make a huge living doing the thing you love. It’s tricky. We don’t have all the answers. It’s never been that easy for artists; I think there’s a myth that it is. We often say in the start-up world the best entrepreneurs are the ones that didn’t give up.”

Perhaps it was no mere coincidence that Peter Gabriel and Kate Bush’s 1986 chart-topping duet, Don’t Give Up, was recently featured in one of Spotify’s karaoke playlists, curated by a 20-something between bouts of FIFA.