The Spotify Play Page 13

  The prospect of Google acquiring Spotify would have been especially irritating to Jobs. A leaked email from this period, written by the Apple CEO, would show that he viewed music as a weapon in a “holy war” with the search giant. When it came to music, his main plan seems to have been to strengthen iTunes and keep it out of Google’s Android phones.

  Devil Inside

  Despite having secured a potentially lucrative side deal, Universal kept stalling throughout the spring of 2011. Spotify’s recently imposed streaming caps caused the number of monthly active users—still hovering around seven million—to decline for the first time in Spotify’s history.

  “Very few companies get to stare negative growth in the face and live to talk about it,” as the CPO, Gustav Söderström, would recall.

  The growth scare made gaining access to the United States even more urgent. Daniel Ek’s company was shrinking in Europe, running out of money, and still didn’t have its US licenses. Yuri Milner and the other investors remained on the sidelines. Spotify’s founders had to ask their shareholders for a bridge loan to cover salaries and keep the money flowing to the music labels.

  Then, after months of silence, Universal Music dropped a bombshell on the Spotify leadership.

  Sometime in late May or early June, the world’s largest record label informed them that Lucian Grainge wanted ten percent of the company in exchange for granting it licenses in the US, as two sources on either side of the negotiations would recall. It was an extraordinary ask. Universal was effectively demanding to receive additional shares worth $100 million before handing over the keys to the world’s largest music market.

  The message is said to have been delivered to Spotify over the phone by Rob Wells, Universal’s head of digital. Privately, Wells was embarrassed by his boss’s audacity, as were several other members of his team at Universal, three sources would recall. One of them described the process as “humiliating.”

  The next day, Ken Parks showed up at the Universal complex on Colorado Avenue in Santa Monica, for a long, emotional meeting with Rob Wells. Somehow, two sources said, the two of them hashed out a deal. The talks were held in Wells’s office right next door to Lucian Grainge, and the Universal CEO is said to have been involved as well.

  Universal did not end up getting ten percent of Spotify’s shares. They received licensing terms that they could live with and the Exit Payment Agreement. The cherry on top was a lump of cash, as several sources would recall.

  What additional sweetener was worked out in Santa Monica would remain a secret. One source, however, would describe a second “schmuck insurance,” in which Universal was promised an additional cash payment if the founders sold Spotify within a shorter time frame.

  Lucian Grainge is said to have signed off on the deal at the end of the day. And with that, a crucial part of the Spotify catalogue was cleared and ready to stream in the US.

  Cloud Nine

  On June 6, 2011, Steve Jobs stepped up on stage for Apple’s Worldwide Developers Conference. As usual, he was wearing blue jeans and a black turtleneck, but the clothes hung from his body like sheets. He looked fragile, thinner than ever before.

  “You like everything so far?” the CEO said.

  The audience cheered encouragingly.

  “Good. Well, I’ll try not to blow it.”

  Steve Jobs’s health was failing, yet he was still delivering the most important presentation of the day.

  “So, I get to talk about iCloud,” he said with a smile.

  He explained how a new, overarching cloud infrastructure would replace the Mac as the core of Apple’s ecosystem, uniting all its products—including its music service.

  “Last but not least, iTunes in the cloud,” he said.

  Jobs then described how all the songs customers bought on iTunes would now be available on all devices, from the Mac to the iPhone to the iPad.

  “This is the first time we’ve seen this in the music industry.”

  Apple’s CEO had just taken iTunes halfway into the age of streaming. And he’d done it before Spotify had had the chance to launch in the US.

  Steve Jobs gazed triumphantly over the sea of faces that had gathered for what would be his last keynote.

  Never Gonna Give You Up

  All that remained for Spotify was a deal with Warner, who had been playing hardball with them all year.

  In January, at the Consumer Electronics Show in Las Vegas, Warner’s Michael Nash had told two Spotify staffers that the label would never let the company into the US with its free service intact, according to two sources.

  “Never is a long time,” Ken Parks is said to have replied, before cutting the meeting short.

  Throughout the spring, Spotify and Warner were at a standstill, unable to agree on the future of the free tier. Spotify had deals with Sony and Universal by summer. Then, the negotiating team had enough confidence to turn the tables on Warner. They relayed that Spotify would love to have them onboard, but that they now had a launch date and would enter the US even without the Warner catalogue. By this time, Warner had too much to lose by not signing on.

  Besides, the label had recently been acquired by Access Industries, whose billionaire owner, Len Blavatnik, was expected to modernize Warner’s business. The deal meant that the influence of its long-serving CEO, Edgar Bronfman Jr., was waning. In late June or early July, Warner agreed to the terms and cleared Spotify’s path to the United States.

  Spotify now had fulfilled all three of their promises to the new investors. They had renewed the licenses in Europe and finally gained access to the US market. The partnership with Facebook was coming along, too.

  During the summer, Spotify re-upped on venture capital. The three new shareholders—Yuri Milner’s DST, Accel, and Kleiner Perkins—transferred around $100 million to Spotify’s parent company in Luxembourg.

  Doggedness, dedication and chaotic music-industry dealmaking had gotten the Swedish startup over the line.

  “And boom, we’re a billion-dollar company,” one Spotify executive would recall.

  2 Phones

  A few weeks later, Spotify had all but entered the US market—but Spotify’s communications director, Angela Watts, still wasn’t taking calls from reporters. There were a few final details to iron out in the Warner contract.

  On a Tuesday afternoon in July, Daniel Ek found himself pacing around the Spotify offices on Eighth Avenue, his two cell phones vibrating constantly.

  “People are prepared to pay for convenience,” the twenty-eight-year-old CEO told a reporter from the New York Times.

  “If you want to take your music with you, you shouldn’t have to worry about fifteen different sync programs or anything else. It ought to be as simple as pressing play and it works.”

  The following afternoon, Warner signed the final deal. Spotify’s press team did not waste any time getting the news out, beginning with a select number of influencers.

  “So excited Spotify is FINALLY coming to the US tomorrow!” Britney Spears wrote on Twitter.

  Users in the United States were offered an ad-free version with unlimited desktop listening for five dollars per month. For twice that, they could save songs offline and listen on their cell phones. As with previous launches, free users initially needed an invitation to get started.

  “New Service Offers Music by Quantity, Not by Song,” read the headline in the New York Times. The article outlined the differences between iTunes, Spotify, and file-sharing.

  Euphoria

  The following week was a victory lap for Daniel Ek. He traveled across the United States with Shakil Khan at breakneck speed. They went from New York to San Francisco and on to Los Angeles. They stayed at a boutique hotel in West Hollywood and dined at the celebrity chef Nobuyuki Matsuhisa’s restaurant in Beverly Hills. Then they went to San Jose and to the Aspen ski resort in Colorado.

  Shak’s trail of tweets indicates a kind of giddy anticipation. At one airport
, he joked that Daniel had pretended not to know him while passing through security.

  “Me: Daniel, where are we going? He: Sssssh, pretend you don’t know me, I don’t want to be strip-searched like you,” Shak wrote on Twitter.

  Spotify’s PR team in New York had kicked into high gear, supplying certain celebrities with invites. Shakira and 50 Cent were just two of the many artists that would spray the public with free accounts. When The Verge held a raffle with a hundred invites, the “giveaways” were gone inside nine minutes. The PR team was pushing up demand by creating a feeling of scarcity.

  “I tried to pull some strings, this is the best I can do,” wrote Ashton Kutcher, sending out a link with invites.

  Whether the supply was really that limited is another matter. Angela Watts had, for example, given Motorola and Sprite one hundred thousand invites each to pass on to their customers. Spotify proved, once again, that it knew how to leverage its exclusivity and generate buzz.

  Even before the US launch, Spotify had more paying subscribers than rivals like Rhapsody, MOG, and Rdio. With eight million users and 1.6 million paid subscribers, Daniel Ek was about to strengthen his position in music streaming.

  The Spotify CEO celebrated his company’s arrival in the US at a party in a huge, faux Louis XVI-style mansion overlooking the San Francisco Bay. It had marble pillars, pools, its own cinema, and belonged to Spotify’s new investor, an absent Yuri Milner.

  One of Daniel’s old friends attended the party. Unaccustomed to valet parking, he left his car outside the gates, and would have to walk hundreds of yards to reach the house.

  Daniel’s first triumph on American soil was celebrated in one of the most expensive private homes in the country. Fifteen minutes away, in Palo Alto, lay Steve Jobs’s modest brick home. His challenger from Stockholm had finally arrived.

  Sean & Zuck

  MUSIC LICENSES FROM THE MAJOR record companies had now given Daniel Ek the keys to the US market, where tech press—from TechCrunch to AllThingsD to the New York Times—frequently reported on the new streaming service. Yet bicoastal hype was far from enough to ensure success in the United States. Spotify needed to reach college campuses around the country and desktop computers in the homes of teenagers. Luckily, Daniel Ek had a newfound friend who could expose his music service to around half of the US population. During a meeting in early 2011, five months before Spotify’s US launch, this ally—another t-shirt-clad entrepreneur in his mid-twenties—offered his thoughts on how music might spread online.

  “I absolutely believe that you want to share music with your friends,” Mark Zuckerberg told a small group of Facebook and Spotify employees.

  The Facebook CEO was holding court in his office on the company’s Palo Alto campus. Its transparent walls made it look like a fish tank in the middle of Facebook’s bustling workspace. The company headquarters were five minutes away from Stanford University, where Zuckerberg and his many competitors would turn to recruit technologically savvy graduates. For this meeting, he had gathered a handful of his closest co-workers, among them his trusted Chief Product Officer, Chris Cox. Other attendees included Spotify’s VP of Product, Gustav Söderström, and his head of product development, Michelle Kadir.

  “I don’t think you care that much about what music your friends are playing,” Gustav disagreed. “I think you’d rather see what people with the same taste as you are listening to.”

  The tall, blond Swede—whose chiseled jawline had given him the nickname “The Viking” among Spotify staffers—usually had a crystal-clear vision for his company. Like his boss Daniel Ek, he enjoyed waxing lyrical about the future of the internet. Colleagues rarely witnessed him abandon an opinion. But he was now talking to the man who had founded Facebook, making him more prone to compromise.

  Zuckerberg held firm. One attendee from the Spotify side would recall how the Facebook founder tended to interrupt others and ignore counterarguments. He appeared to have made up his mind, and Spotify’s prize for agreement was a chance to impress his base of around 150 million monthly active users.

  “I don’t believe in the idea of tastemakers. You want to share the music with your friends,” Zuckerberg concluded.

  The conversation set the framework for Spotify’s landmark integration with Facebook. Daniel’s coworkers soon began to call the project “Hulken,” or “The Hulk,” since it would give the small Swedish company new and oversized muscles. Expectations at Spotify ran high. The company had fewer than ten million total users. At the high end of internal estimates, employees in Stockholm noted that a successful partnership with Facebook could send that number to half a billion.

  Raw Like Sushi

  Mark Zuckerberg had long been interested in digital music. Before the move from the Harvard University campus to Palo Alto, when his site was still called Thefacebook.com, he ran a parallel project called Wirehog, where users could send photos, documents, and MP3 files to each other. The file-sharing service was shuttered in 2006 after Sean Parker, serving as chairman of Facebook, anticipated trouble from the music industry. Mark Zuckerberg now had a chance to combine his old idea with that of a globally spanning social network.

  By early 2011, Daniel and Mark had become friends. Both were self-made, confident tech entrepreneurs born in the early 1980s. They had much to talk about during their walks around the Facebook campus whenever Daniel visited Silicon Valley. People in Daniel’s orbit would describe how he looked up to Mark, who had built a globally thriving tech business without apologizing for it.

  Their companionship developed at an opportune time for the twenty-seven-year-old Swede. For a brief period, Facebook ran two parallel business models: one was to open up the network’s “social graph” to partner companies, allow them to build third-party apps, and become a platform central to all kinds of online activity; the other was to amass as much user data as possible and charge advertisers for the opportunity to target the user base. The latter would eventually prove far more lucrative and become Facebook’s dominant business model in the years following its IPO in 2012. But before then, the idea of becoming a connective node on the internet lived on. With its superior product, unparalleled buzz in media circles, and a CEO similar to Zuckerberg, Spotify managed to slot right into a golden window of opportunity for companies looking for global exposure through Facebook.

  In February 2011, a handful of key Spotify personnel were greeted with open arms on the Facebook campus. Product designers from both companies spent several days in a designated meeting room, attempting to deepen how Facebook users interacted with the Swedish music service. They created individual tags for artists and songs. A tab on the right side of the homepage would broadcast what music each user was listening to in real time. A user who clicked on a song would be redirected to register for a Spotify account, install the client on their computer, and start using the service.

  One evening, a group of fifteen higher-ups had a teambuilding dinner at Fuki Sushi in Palo Alto, one of Mark’s favorite haunts. The Facebook CEO was seated across from Martin Lorentzon, who was surrounded by staff from both companies, as well as Priscilla Chan, Mark’s fiancée. At the head of the table, in a Spotify-green polo shirt, was Daniel, seated next to a quiet but highly influential guest: Russian investor Yuri Milner, who had invested heavily in Facebook after the financial crisis and had now promised to do the same with Spotify. From the corner of the table, Yuri rarely joined the group discussion and spoke mostly with Daniel, one attendee would recall. But he seemed pleased to see employees from two of his portfolio companies bond. The party ordered hundreds of pieces of sushi, which arrived at the table on miniature wooden boats.

  In another part of the world, the Arab Spring was beginning to culminate. Protesters had flooded Tahrir Square in Cairo, while also spreading their messages through social media. In a few days, Hosni Mubarak, Egypt’s authoritarian president, would resign, ousted by a popular movement that some would call the Facebook Revolution.

&
nbsp; In the months that followed, Facebook and Twitter were celebrated as champions of democratic causes in autocratic countries. But by the end of 2011, political groups in Egypt would reportedly begin to use Facebook to spread propaganda, misinformation, and hate speech, in some cases resulting in physical violence. The trend would spread to other countries and, many years later, cause many to question whether Mark Zuckerberg was fit to control one of the most powerful digital tools ever created. But for now, at the outset of 2011, boundless optimism surrounded the dinner table. The twenty-six-year-old Harvard dropout was a visionary helping the citizens of the world connect, and Daniel was his European counterpart, on a quest to make music easily accessible throughout the world.

  A few weeks later, an email arrived. It outlined the specific demands Facebook wished to place on Spotify. As the product team in Stockholm scrolled through the fine print, they found one detail especially worrisome. Mark Zuckerberg required everyone who registered for Spotify to do so via Facebook, effectively shutting out people who might find the streaming service through other channels. Several employees would recall how this issue was sensitive for Daniel. It would shut out listeners in a number of European countries where Facebook had not yet taken hold. Even in Sweden, where Facebook was popular, only around half of all internet users had joined the network. One of Daniel’s core principles had always been that Spotify should be available to everyone. In order to let the world’s largest social network supercharge Spotify’s growth, he, too, needed to compromise.

  My Way

  For some, like Sean Parker, the marriage between Facebook and Spotify was especially significant. Sean served both as one of Mark Zuckerberg’s trusted mentors and as a board member of Spotify, giving him the chance to achieve what he never could with Napster: a boundless, global digital music experience with the backing of the music establishment.