The Spotify Play Read online

  “The worst that’ll happen is that you will fail, but still be able to live in your apartment and put food on the table. That encourages you to take risks. And some of those risks pay off as world-famous companies,” Daniel said.

  The CEO of Symposium, Natalia Brzezinski, had spent more than a year consulting in various roles promoting Sweden as a pioneer in her home country, the United States. She did it through interviews and conference appearances, drawing on the network she built while serving as the wife of the former US ambassador to Stockholm, Mark Brzezinski.

  “Barack Obama said the world can learn something from the Nordic region. For us that was so powerful, and very much the thesis of what we’re trying to do,” Brzezinski said. She was well-positioned to carry out cultural diplomacy between the two countries. Her sister-in-law, Mika Brzezinski, was a renowned host of Morning Joe on MSNBC, one of the biggest morning shows in the US. Her father-in-law was the esteemed political strategist Zbigniew Brzezinski, who once served as National Security Advisor under President Jimmy Carter.

  Sweden’s ruling class was clearly present throughout Brilliant Minds ’16, during which they mixed with international music stars. At a dinner party in the stately Djurgården home of the Bonnier family, heirs to a publishing dynasty, the former Swedish foreign minister Carl Bildt mingled with Prince Daniel, investors such as Kinnevik’s Cristina Stenbeck, and the legendary music composer Quincy Jones. On another evening, Wyclef Jean was seen enjoying a meal alongside Fred Davis, the early Spotify advisor, at a restaurant overlooking the city.

  The whole event was lavish but casual. In the Winter Garden at Grand Hotel, where the annual Nobel banquet was once held in the early 20th century, decorative spotlights lit up the symbol of Symposium: a large, human head in white plastic, built layer by layer as if created by a 3D printer.

  On stage, Daniel Ek interviewed one of his heroes, pop star and music producer Pharrell Williams. But for the most part, the Spotify CEO stayed in the background, quietly exchanging words with friends and acquaintances. One of us, there to cover the event, watched as Daniel’s confidant Shakil Khan moved through the room, offering warm greetings to many familiar faces. One of Soundcloud’s founders, Eric Wahlforss, passed by in between panel discussions on leadership, artificial intelligence, and data-driven creativity.

  As a young boy, Daniel had dreamt of becoming bigger than Bill Gates. He was now recognized as a pioneering business leader, and the world around him was interested in his thoughts about where society was headed. How might new technology help prevent the root causes of disease, and not just relieve symptoms? What happens when machines make a hundred million people redundant within the transportation sector? No quandary seemed too far-fetched to consider.

  “We’re trialing six-hour work days, which I think is related to the future,” Daniel said during the introductory press conference.

  If more countries followed the example of the Swedish labor market, he added, parental leave would become more commonplace. That would in turn give people more free time to explore their creative interests.

  “I think society would greatly benefit,” Daniel said.

  For several years, Daniel had spoken enthusiastically about innovation within the health-care sector. He would take frequent blood tests and once said that he underwent annual MRIs as a way of keeping tabs on his health. Some people said he had become a “health freak.”

  In 2016, he would also start frequenting fashionable fitness centers: Equinox in the US and Balance in Stockholm. Balance was founded by entrepreneur Daniel Westling, who would become Prince Daniel when he married the Swedish Crown Princess, Victoria.

  Ek would often hit the gym with Moha Bensofia, whom he and his fiancée, Sofia Levander, had helped rush out of Libya a few years prior.

  “Personal bests broken daily!” Bensofia declared on Instagram, as Daniel posed for a mid-workout photo, flexing awkwardly into the camera. He was still a little stodgy, but the transformation had begun.

  The couple had welcomed Bensofia into their family, and would refer to him as an uncle to their two daughters.

  That same year, Sofia Levander invested in the Swedish company Werlabs, whose tests measured anything from blood fats to vitamin levels. The money came from Daniel’s new holding company which, like the one before it, was registered in Cyprus. A new parent company had been registered in Malta.

  Daniel Ek had begun to free himself of the structures that Martin Lorentzon once helped him to put in place. According to some sources, Daniel no longer wished to be tied to his co-founder, who, according to one source, helped Daniel manage his personal finances in the early days.

  Loyal above all to each other, Spotify’s founding duo had always kept their disputes from the outside world. Yet Martin, while happy to dedicate himself to company parties, was said to sometimes question Spotify’s lavish corporate culture, with teams flying across the world for internal conferences. But free spending had become the norm at companies such as Google and Facebook, and Daniel saw them as Spotify’s peers. The CEO was anything but frugal in his approach.

  “Perception is reality,” as one of Daniel’s favorite sayings went, according to one source.

  To some, Daniel appeared to be levitating. Many of his old friends and coworkers had begun to wonder who truly remained in his inner circle. Daniel appeared isolated in Sweden outside of his family. On the rare occasion that he showed up when old friends were celebrating their birthdays or weddings, he would seem uneasy. And hardly anyone out of the old group of friends had been invited to his upcoming wedding in Italy.

  “He seems to think everything he says will end up being published somewhere,” someone who knew Daniel during the early Spotify years would recall.

  Daniel Ek had matured in tandem with his wildly successful company, and was looking to broaden his horizons. He appeared to enjoy closed circles, rubbing arms with other business leaders and creators facing similar challenges to his own. The Swede’s ambitions still knew no limits. He wanted Spotify to change the world of music and entertainment for generations to come. What mattered was “impacting culture,” as he would describe it in interviews.

  At the Brilliant Minds press conference, Daniel returned to one of his favored topics: successful Swedish entrepreneurs selling their companies to foreign owners.

  “The thing that excites me about Stockholm is that we’ve had a couple of exits, you know, Minecraft and Skype,” he said before offering some advice to Swedish founders.

  “The number one advice I tell everyone is ‘don’t sell.’ That’s the number one problem we have. All of these things could go gigantic if they keep doing what they’re doing.”

  It was the same argument he had put forth to tech journalist Kara Swisher in London seven years prior. Since then, he had negotiated with several tech giants, but had never been truly close to a sale. With the benefit of hindsight, the Spotify founder said he was tired of seeing US corporations gobble up the hottest startup companies in Europe as soon as they showed enough potential.

  He had, however, begun to sell off some of his shares in Spotify. During 2013 and 2014, Daniel had sold shares for nearly $50 million via his holding company in Cyprus. The transactions were hidden from public view until one of this book’s authors reported on them for the financial press.

  Some of that money may have gone toward his new summer home on the island of Värmdö, southeast of Stockholm. In November 2015, Daniel paid more than $5 million for a waterfront villa that was nearly 4,000-square-feet, on a property spanning more than three acres.

  The seller was Kalmar Investments Limited, a corporate entity registered in the British Virgin Islands. According to two people, it belonged to the Skype founder Niklas Zennström.

  In the second row of journalists at the press conference, an American reporter with the news agency Reuters raised her hand. She asked Daniel to clarify what he meant.

  “So, you’re not going to sell?” she ask
ed.

  “Not going to sell, no,” the Spotify founder said, with a coy smile.

  Whatta Man

  Spotify’s tenth anniversary was marked by Celebration X: a week of festivities for the company’s employees, in and around the Stockholm area. This was Martin Lorentzon’s chance to showcase Swedish summer traditions to all of his staff. The co-founder took on the role of ringleader as over two thousand staffers celebrated Midsummer, a Swedish pagan tradition, with a ring dance at the Tele2 Arena in southern Stockholm.

  Martin held court on a small stage in the middle of what usually served as a soccer field, surrounded by a Swedish folk band in traditional garb. As they played the Midsummer classic “Little Frogs,” coders and product designers from around the world squatted and hopped along. Lorentzon gave an emotive speech in honor of his home country before everyone took a seat to enjoy pickled herring and aquavit schnapps in the sunshine, surrounded by thirty thousand empty seats in the stadium stands. Celebration X had quickly become a crash course in Sweden’s unique and often drunken summer traditions.

  Over the course of the week, Spotify’s employees visited classic Stockholm establishments such as Operakällaren, an upscale restaurant behind the Opera House. One evening, they took ferries to the fortress of Vaxholm, a piece of early modern Swedish military history located on a strategically placed island in the archipelago. The staffers also sang karaoke, with hundreds joining in on a loud rendition of Queen’s “We Are the Champions”. Many got the chance to take selfies with Daniel Ek and Martin Lorentzon.

  During the closing party, held at a warehouse location in southern Stockholm, loud cheers rang out as Justin Timberlake made a cameo on stage.

  “I’m very happy to be here with Daniel and you guys. And as we say in Stockholm: skål, för fan!” he said, raising his glass for a toast in the local language. Backstage, the pop star learned to say “I raise my little hat” in Swedish, a feat that was documented and later uploaded to Instagram.

  Closing out the last night of Celebration X were the electronic DJs Axwell & Ingrosso, two members of the Swedish House Mafia. As their hit, “Sun Is Shining,” approached its climax, smoke began to pour out of cannons placed at the front of the stage. Laser beams began to flash, a costly array of pyrotechnics was triggered, and Spotify-green confetti rained down from the ceiling.

  Martin Lorentzon’s role at Spotify had become increasingly ceremonial. A few months prior to Celebration X, he had quietly stepped down as chairman. Daniel was now both chair and chief executive, a rare combination in Swedish corporate life, but common among publicly traded companies in the United States. By the fall, after discovering corporate filings in Luxembourg, the Swedish business weekly Affärsvärlden reported that Martin Lorentzon had stepped down to take a regular board seat. The Spotify co-founder had no choice but to address the matter publicly.

  “I look forward to another ten years with Spotify as vice chairman, and the daily walks and talks with @eldsjal,” he tweeted, in Swedish, tagging Daniel, whose nickname in most social media channels means “passionate enthusiast” or, more literally, “firesoul.”

  Over the following years, Martin’s influence would decrease further. At the end of May 2017, he attended a seminar on politics on the tree-lined street of Strandvägen, which ran along the water and featured the grand apartment buildings that had been the homes of the Swedish business elite for more than a century. After the discussion, the Spotify co-founder was approached by Swedish Radio.

  “I believe there is a shortage of two hundred thousand software developers in Sweden,” Martin said during the interview.

  Asked when Spotify’s IPO was due, Martin dismissed the issue outright.

  “We have not gotten anywhere at all and there is nothing to comment on about that,” he said.

  His answer did not add up. Over the past several weeks, newspapers such as the Financial Times and the Wall Street Journal had revealed details about Spotify’s preparations to go public. Asked once again about the listing, Martin said the information had been taken “out of thin air.”

  “I guess you have to take the press with a pinch of salt. I’m not saying it’s fake news, but half of what the media writes is usually correct, while the other half isn’t,” he said.

  The headline—“Spotify Denies Listing Plans”—did not go down well with the company’s communications team. Soon, Martin’s comments were reprinted elsewhere. Within a few hours, the press department had sent out a retraction, noting that a public listing was, in fact, “a possibility.”

  “Martin is our co-founder and a board member, but not a spokesperson for the company,” the press release read.

  Only a few years prior, Martin Lorentzon could speak freely for Spotify, in which he was still the main shareholder. Now he faced the choice of reining himself in or having his impulsive statements corrected when the facts didn’t line up.

  The chatter among Spotify staff was that Martin’s comments had upset and disappointed his co-founder. Both wanted as little public scrutiny of the company’s finances as possible. Yet what Martin had claimed was simply too far-fetched.

  The truth was that Spotify’s finance department was about to finalize its application to be listed on the New York Stock Exchange. That work had been underway since the middle of 2015, when the music-streaming giant welcomed a new and outspoken CFO.

  Nice For What

  “Why is Stockholm so shitty?”

  The abrupt question put a stop to the regular small talk that had opened the meeting. Barry McCarthy had only been at his job for a few weeks, yet he already seemed disappointed with his new hometown. The recipient—a high-ranking Spotify staffer—struggled to make sense of the question. What did his new superior really mean?

  Sure, Spotify expats would often complain about Stockholm being cold, gray, and full of people who would shove past each other in the subway without saying “excuse me.” But this assertion—that Stockholm was simply “shitty”—was harder to make sense of, especially in mid-summer, with the city in full bloom.

  The sixty-year-old Barry McCarthy, who had helped list Netflix on the Nasdaq stock exchange in 2002, would soon become well known for his rugged jargon. The American simply found Spotify’s headquarters at Jarla House—a concrete slab in the middle of Stockholm—depressing. It was probably rough for Barry, who had left Palo Alto, where his home had a pool and a tennis court. In addition, the mission he had been brought in to carry out now appeared much harder than when he had signed his contract. Barry soon understood that Spotify was not ready to be listed—far from it.

  The many problems varied. Spotify had grown quickly, and its organizational structure was, in places, haphazard. Its internal accounting system would have fit a medium-sized business operating in a handful of countries, but not a global market leader with business in nearly sixty countries. If a staffer in the finance department wanted to break down marketing costs for a single country for the year 2014, there would be no way of doing it.

  Moreover, it was difficult for Spotify to accurately estimate its own costs. Over the coming years, the company would retroactively write up their royalty payments by more than $60 million due to accounting errors. Spotify had a hard time forecasting how the business would perform. During some quarters, subscriber growth came in well below its own estimates; during others, the number of subscribers surged past the growth team’s targets.

  Barry McCarthy knew that the stock market hated unpredictability. The new CFO had to get Spotify’s reporting in shape quickly. He enjoyed the full confidence of Daniel Ek and showed his chief executive the proper loyalty and respect. Yet several coworkers would recall that Barry did not appear to take Martin Lorentzon seriously. According to one source, the original plan was for both Spotify founders to have adjoining offices in the splashy new headquarters being built on Regeringsgatan in central Stockholm, but once Barry had taken the reins as CFO, the Spotify board shelved the idea. By the time the building
was completed in 2017, Martin’s office was no longer part of the floor plan.

  Barry McCarthy ruled Spotify’s finance division with a firm hand. And with the stock market listing looming, a defining event for the young company, his influence extended further. Barry rarely shied away from bragging about his previous career achievements and was unsentimental in reorganizing the finance department, which partly meant letting staffers go.

  Barry practiced what he liked to refer to as “radical transparency,” a corporate trait he had taken with him from Netflix—essentially, he would freely and frequently speak his mind. Once, at an all-hands meeting, Spotify’s employees got to witness it in practice.

  “I don’t give a shit about diversity,” he said during a group discussion about representation at the company, according to one source.The CFO himself would later regret the comment and describe how he delivered it at a meeting with the North American sales team.

  “Saying ‘I didn’t care’ about diversity as a whole was sloppy and inaccurate. I realized that it was a very poor choice of words as soon as I got off the stage,” Barry McCarthy said in an interview for this book. His point, he added, had been that diversity was subordinate to proficiency when building a team. Barry’s comments would later be cited in a lawsuit alleging that Spotify underpaid female employees and allowed a culture of “boys’ trips” involving drugs and strip club visits to thrive within the company’s North American sales division. As of the completion of this book, the lawsuit was unresolved.

  Ahead of the IPO, Barry set three firm priorities for the company. The first was to increase Spotify’s margins, primarily through renegotiating better terms from the record labels. Spotify needed a significantly larger piece of the pie to eventually turn a profit. Not only would higher margins satisfy Wall Street, it was also in the major labels’ own interest, as it would drive up the value of their own shares in Spotify. Second, he had to get the finance department’s accounting on par with that of a publicly listed company. Finally, Barry wanted the conversion to paying subscribers to become more predictable. The same applied to the company’s financial forecasts, a task that he delegated to his predecessor, Peter Sterky.