Music is so important to us humans and has been for

thousands of years, the last 20 of which have seen an

incredible shift; online streaming music.

What started out as music piracy became an 11 billion

dollar industry, making up 56 percent of global music

industry revenues in 2019.

And one company has become the clear winner globally in

terms of paid subscribers.

Spotify is where everyone is at.

Taking on bohemoths like Apple, Amazon and Google, Spotify

has dominated the streaming music industry with about 130

million premium subscribers worldwide, despite being number

two behind Apple in the U.S., according to data from 2019.

Spotify has been on a winning streak recently with the

acquisition of Joe Rogan's incredibly popular podcast,

along with exclusive deals with Kim Kardashian and DC

Comics, all in an attempt to broaden its scope from music

streaming to audio giant.

The companies that we bought and the talent that we have

brought onto the platform will help us become the number

one audio platform in the world.

And the devastating global pandemic has also contributed to

Spotify's recent financial gains.

Boom. Look at this stock verse three two hundred for first

time and it just keeps surging.

Linear radio is moving to on demand.

We're talking about something that has billions of

consumers around the world that are now moving their

behaviors online.

Something like the Covid will likely accelerate that trend.

But Spotify had an uphill battle from music rights to

artists demanding fair pay.

This is the story of how a small Swedish startup came to

define the way we listen to music in the digital age and

what we can expect in the future.

The podcast is moving to Spotify.

The Internet has changed so many aspects of media

consumption, but few have had a more tumultuous

relationship with these changes than the music industry.

I don't believe we're talking about streaming music if it's

not for Napster and Sean and everything they did.

CDs became the standard medium in the 1990s.

At the same time, home computers were becoming more

commonplace. Many with disk drives built in, allowing users

to take their favorite CDs and rip them on to their devices

as MP3 files.

This made way for peer to peer music sharing or music

piracy through platforms like Napster and LimeWire.

If you look at Napster and of course other competitors that

followed, it really disenfranchised the industry.

Apple, having had great success with iTunes and the iPod,

decided to start selling music digitally on iTunes in 2003

as a way to charge into the music industry and combat music

piracy. It's not stealing anymore.

It's good karma. iTunes was the first legal attempt of

saying, OK, what Napster is doing is piracy and it is the

wild, wild west. How can we start to look at digital

downloads? Would people pay 99 cents for a song to be able

to have access to it?

And it succeeded.

It was all about downloads.

It's all about iTunes.

iTunes was the driving force.

It in turn, destroyed other music selling businesses,

knocking out Tower Records and almost every other music

store. This was a tough pill to swallow for the music

industry as a whole.

During the 90s, the money was still flowing.

The advances I would get, they would spend a million

dollars on the promotion of my singles.

Me. Like, someone who doesn't even write mainstream stuff.

Then the Internet put a stop to that.

The industry was so used to big margins.

To sell a CD for 20 bucks and it only cost one dollars to

manufacture. So the margins were huge.

And then go from that to OK, now albums are 9.99 at iTunes,

those margins started to deplete.

And for music lovers who wanted their music for free, radio

was still a resource they cherished.

Online radio company Pandora claimed some of that market

when it launched in 2000 and 10 years later, it had 48

million subscribers.

I remember when everyone I know was trying to tweet their

Pandora stations.

I had it on my phone all the time, was like, oh, like this

station becomes this, and it was cool.

But pirating was still an issue.

A 2007 study concluded that twelve point five billion

dollars in total output was lost in the U.S.

annually because of music piracy.

And radio was great, but users wanted to choose their

music. That left the market open for a small Swedish

company to make its way in.

We want music to be like water, everywhere.

Spotify was founded in 2006 and made its way to the U.S.

in 2011.

It started with an invite only beta program for the free

tier and quickly garnered favorable reviews.

But it faced an uphill battle to the top.

It was getting the rights.

It was convincing subscribers to get onto the platform.

These were extremely difficult times for Spotify to make

sure that they were able to nab the content, especially at

that time. One reason for the company's delayed entry into

the U.S. market was because of music rights.

It's a complicated business that costs Spotify nine point

eight billion dollars between its launch in 2018.

They made that risky bet at the time.

They're like, look. We know we're going to lose money, but

that's what we're going to need to do, if our investors

support it, for music rights, given the price, given

content. Once we acquire that content, it's the carrot and

stick approach in terms of subscribers would come.

Clearly, the company was onto something and that piqued the

curiosity of some major brands.

Now it seems every major tech player has its own music

streaming platform. Apple dropped iTunes and created Apple

Music. Amazon created Amazon Music.

Google created Google Play Music and then YouTube Music.

Jay-Z even formed his own service called Tidal, which

focused on professional sound quality.

But Spotify kept its spot at the top thanks to its freemium

model, where users can listen for free with ads or pay for

a subscription without ads.

We believe in a true free service.

We believe in something where the user knows that they can

go back month and month and month, month again and have

access to your music.

By the end of 2019, Apple Music had 60 million paid

subscribers worldwide.

Amazon Music had 55 million subscribers worldwide, nearly

all of which were paying subscribers.

Chinese company Tencent had thirty nine point nine million

paying subscribers, while Spotify had one hundred and

twenty four million paying subscribers.

It was about free going premium.

Conversion was key, and I think Spotify was really the one

that started that.

Platforms like Apple Music are more exclusionary, forcing

customers to pay after their free trial is up.

Apple even tried to kill Spotify's free version back when

Apple Music launched.

Free just makes sense for customers, which is a major

reason why Spotify is so popular today.

But free isn't so great for musicians.

The ad dollars are actually less than the premium

subscriptions. But Apple Music, Tidal, those platforms, you

get your free trial, but you have to pay.

So it's a hard pill to swallow when you're looking at your

statement saying, dang, Apple Music.

Should I focus my energy on Apple Music because this is

where the money is? Or do I still go with Spotify because

that's where the users are?

Spotify gained popularity, artists started to wonder why

they weren't seeing the financial gains they were used to

with CD sales and downloads.

Taylor Swift boycotted Spotify in 2014, pulling all of her

music off the service and saying she and other artists

weren't being paid enough for each stream.

Adele followed suit in 2015, announcing her album 25 would

not be released on Spotify or Apple Music.

The term windowing became popular, where artists would only

release an album on a certain platform or would not stream

an album at all for a certain amount of time.

So a lot of artists window the records where it wasn't on

Spotify, say, for a certain period of time but on Apple

Music. Kanye West was known for this with Tidal.

Taylor Swift and Adele both released their albums on Spotify

eventually, but it opened streaming services up to

questions about how much they were paying their artists per

stream. Spotify and Apple both don't release exactly how

much they pay distributors per stream, but it has been

reported that Spotify pays around 70 percent of the revenue

made on a stream.

I mean, people listen to my music on Spotify.

That makes me happy.

Now, I know there people aren't getting paid for that, and

that makes me sad.

But I think that that's a systemic, technological,

capitalistic, human issue.

And you have to go back 300 years and look at how a

musician was making their living for their intellectual

property in 1901.

In 2019, Spotify announced it was moving its music focus to

a more general audio focus to broaden its offerings and

widen its global lead on competitors.

It acquired the Joe Rogan Experience early in 2020 and

penned exclusive podcast deals with Kim Kardashian and DC

Comics. The company's stock jumped eight percent at the

announcement of the Joe Rogan acquisition alone.

A year ago, when I was on the show last time, I introduced

the shifts in our strategy from music to audio.

At that time, we were a very small player in audio, but

growing fast.

Now, we're the number one player in more than 20 markets

around the world and quickly catching up in the markets

where we're not number one.

That's where Spotify is taking the future right now, and

analysts believe it can ride that wave for a bit.

Ninety percent of our monetization is on the subscription

side. But 10 percent is on the ad side, and we do think

that there is real growth opportunity for us in the ad

space, particularly with podcasts.

Just after these podcast deals were penned, the global

pandemic started taking its toll on the economy.

But Spotify was one of the few companies that weathered the

storm. In fact, Spotify stock increased 70 percent from the

beginning of January 2020 to the end of June 2020.

They benefited from Covid because the lockdown's forced

people to stop listening to radio and they discovered

Spotify while stuck at home.

Of course, yes. If your Spotify, you'd much rather make

money from the podcast acquisitions and that then having to

pay 60 to 70 cents for every dollar to Universal or Sony.

But in order to stay at the top, Spotify is going to have to

stay nimble and quick.

Competitors like Tencent are already adding features like

karaoke to their streaming music platforms.

Tencent, at least, is on that path from a gamification

perspective. So I do think that that is an opportunity for

Spotify to keep in mind, like, yes, it's great that you got

Joe Rogan. It's great that you've got Bill Simmons.

But look at those opportunities as well.

Even though it's a different market, I think there's a big

opportunity there. Nevertheless, Spotify is still very much

a success story.

Today, they're sitting there drinking their cappuccino

laughing as they see this success.