Original URL: http://www.theregister.co.uk/2009/06/30/spotify_interview/

Spotify founder hints at video, P2P sharing, world domination

Thinking big

By Andrew Orlowski

Posted in Media, 30th June 2009 01:11 GMT

If you don't know what the fuss is about Spotify, you probably haven't used it. The company's co-founder Daniel Ek was at Music House last week, and treated attendees of the Music Publishers' AGM to the frankest public interview about Spotify I've yet heard. I also caught up with him after the session. It all adds up to the best picture yet of where the music phenomenon could be heading.

Ek admitted the ad business as not really launched yet, he also discussed delivering video in the future, using Spotify for P2P downloads, and even a public flotation. He also confirmed the popularity of the service which stealth launched in January and now boasts over half a million UK users, and is watching Last.fm and Pandora get smaller in the rear view mirror.

Spotify had "five to six times" the usage of any other streaming service, he said.

Doing a legal service is hard

First things, first, though. Ek described the original rationale behind Spotify. It won't surprise anyone who's used it, but the focus was on performance, performance and performance.

"We spent a lot of time looking in intricate detail about how to play music," he told Impact magazine editor Emmanuel Legrand. "What sound codecs you use, how you distribute it, how you stream it, and how you present."

"Spotify looks like it plays instantly but actually it's not."

Ek said that living in Sweden, he hadn't used a legal, licensed service since finding digital music services through MP3.com in 1997. WinAmp had been released in April 1997, and along with its companion software Shoutcast caught on like wildfire that summer. He'd been a Napster and Limewire user along the way, noting iTunes hadn't launched in Sweden - that came in May 2005.

Doing a legal service appealed, he said, because of the challenge.

"It's not hard to do illegal software... Spotify would be the most popular service in the world if it was illegal," said Ek. Apple badly needed some competition, he added.

"It's sad that the one dominant player, iTunes, doesn't care about the music industry," he said. "We want to be the second company that writes huge cheques to artists."

Making money. How?

Spotify is on a fascinating knife-edge between attracting P2P downloaders and not repelling them again with intrusive advertisements. Was Spotify on target with its revenue forecasts, Ek was asked?

"Not really, to be honest. We're in one of the world's worst recessions, and it's taken longer to get started. We view it as we haven't really started yet. In four months you can't build a self-sustaining model, like iTunes". Figures seen by The Register confirm that Spotify's revenues are negligable. But it's early days.

Ek outlined a range of future revenue options.

"We think the future of the music industry is an access model, where users pay either with their time by watching ads, or through ISPs or carriers, or through buying handsets. What is lacking in the industry now is what can facilitate those kinds of licensing deals."

Its best hope for now is making Spotify available in an offline and mobile player - that's "access" to an "access model" that people might actually pay for.

Video

Ek was asked if the features that made Spotify so great at music delivery wouldn't also work in its favor with video?

He agreed, but it was a case of not yet - music would keep Spotify busy for the next couple of years.

Of course with video it's up against the muscle of Google, which as Telco 2.0 described here recently (see Google's real YouTube strategy), is building its own Content Delivery Network. Now you can understand why Google threw its weight behind the "net neutrality" scare - it tips the playing field firmly in its direction.

IPO?

Ek was asked if Spotify was really designed to be bought - a theme pursued by follow-up questions from the floor.

"We've invested more than €8m of our own money... we're not interested in any short-term gains. We want to make this into an independent company, we might put it on the stock exchange at some point, but we're not in it for the short-term gain."

Cannibalisation?

Charles Cosh, founder of label Moksha, asked two good questions: what percentage of users go out to buy product? And "when Spotify sell out, what percentage of that money will be returned to publishers and record companies to make up for the fact that you've got cheap rates at the moment?"

Ek complimented the Shamen manager on the first, and dodged the second.

"We only have a very limited amount of data about purchasing habits. Two months ago we had the first download integration. The download integration we have now is not very good, I can tell you that. It demands a right click, and then after about 14 clicks you can actually buy a product," he replied.

"Despite that, there's a lot of people that were impressed by the numbers we had. We're working on a one-click download solution with 7Digital, press buy, press OK and you buy a recording. My hope is to get it out in the next couple of months."

Ek said the buying habits of 80 per cent of Spotify users were unchanged, 10 per cent were buying more music, and 20 per cent were buying fewer sound recordings.

No, this doesn't add up to 100: we asked him afterwards and he said it was a multiple choice question. Color us confused, still.

What about returning some of the proceeds of a big bucks acquisition, or an IPO, back to the creators, then?

Ek replied: "We as an industry have to realize [online music] is a very nascent thing. In ten years the transactional model has worked, but the truth is 95 per cent of downloads are illegal, and you guys aren't being compensated at all from them. What if we can take all of those into a legal environment - isn't that worth something? But it takes time."

Spotify: World Domination beckons

Catching up with Ek afterwards, we asked him about one intriguing option for Spotify that no one has really noticed yet. Spotify maintains a huge cache of your music. You can limit it to a modest 10GB. If you think about it, Spotify is building up a nice music library for you.

Yes, said Ek. Spotify had made the decision to encrypt the cache using a home-grown DRM. But yes, it was a music library.

Now consider that Spotify already does P2P. Songs can pulled from users on the same network, and that's the company's sales pitch to ISPs: partner with us, and save bandwidth. So couldn't Spotify at some point just flip the switch and become your iTunes replacement?

The answer was intriguing.

Ek said when you have an access model there's no real difference between a stream and a download, and while it's been a traditional distinction - from the days of radio and wax cylinders - the music business shouldn't get hung up on it. The important thing was the access model.

Spotify needs time for your music collection and playlists to accumulate - then it's ready to flip the switch.

Our Spotify series continues: catch Part One here and an exclusive look at the numbers in Part Two, here. ®