Spotify Founder Says the Future of Music Industry is in Low-Margin Model
By Karla Robinson
November 21, 2012
November 21, 2012
- Spotify founder Daniel Ek compares the music streaming service, now valued at $3 billion, to Amazon, saying he’s willing to bet on low-margins to build the business in the long term.
- The music industry has been resistant to such services, but Ek suggests the business model makes more sense as consumers’ habits have changed.
- “Songs in the [Spotify’s] catalog are played again and again, with no diminution in popularity,” in contrast to the quick decline of sales after CD releases, Quartz writes. “The reason is simple: people are building playlists. It’s as if an artist were paid every time one of their fans dropped a needle on their record.”
- “They’re saying, oh, they’re just paying a fraction of a cent every time someone plays a song,” says Ek. “And then you compare it versus the download revenue. Well, I can tell you it will take you 200 song listens before you make the same amount of money [as a download]. But because the consumption behavior is entirely different, and the revenue then increases in perpetuity, it’s not even a question of if this model is better, it’s just when in the life cycle it’s better.”
- Ek wants to rebuild the industry that has been torn down by piracy and consumers’ shifts in behavior.
- “As the world moves from owning content to getting access to it on demand, Ek’s experience is likely to generalize across all kinds of content,” including movies, notes the article. “It’s a fundamental transformation of how artists and their industries will make money.”
- As a point of differentiation from other services, Spotify is focused on music discovery. But it relies on third-parties to build such apps on top of Spotify’s library.
- “We distinctly don’t think we’ll figure out every single use case around music,” says Ek. “But we do want to be the platform for music… If there’s music somewhere, we should power that.”
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