Spotify secured label deals by guaranteeing their near-term budgets

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 2:00

   Yeah, well, I usually start off by sort of saying whenever anyone asks me about the story, it's like, well, I had hair when I began this. And by the end of this, I obviously ended up being bald. So you can see that it wasn't an easy journey. All jokes aside, I mean, just to kind of set the scene, I mean, I started Spotify in 2006. I was 23 at the time. And the world looked a little bit different. So this is pre-iPhone, pre-I mean, Facebook existed, but it was college only.

2. 2:31

   YouTube didn't exist. So just like that kind of dates me, but this is before all the things we now take for granted. it. And the world at that time and the music industry at that time was in free fall because music piracy was kind of rampant. So we had Napster, we had Kazaa, we had all these things. And there was an organization called the RIAA that went around and actually sued individual consumers in the US for illegally downloading music. And so I was sitting in Sweden and I was thinking to myself, you know, this is wild and this is crazy. There's no way to put the genie back in the bottle. And me and my co-founder, Martin, we were kind of sitting and spitballing startup ideas at the time. And Martin asked me like, well, if you could do anything you'd like to do, what would you do? And I said, well, my real passion is music, but that seems like a

3. 3:26

   really stupid idea. And he's like, well, why is that a stupid idea? And I kind of told him about, you know, it's really hard because you have to do all these deals with the record companies. You have to then figure out how to do licensing and copyright, and you have to do all of these different things. And I said, well, what if you did this? And then he kept asking these what if questions. And eventually I ran out of reasons to say it.

4. 3:50

   So I said, well, I guess you could do something. And if you did something, it would feel like you had all the world's music at your fingertips. And he's like, well, that sounds pretty good. So, well, okay, well, let's give it a try. We started trying to license music. Originally, the idea was to try to go global from day one. And everyone was just laughing at us when we were originally saying that.

5. 4:15

   But I sort of lucked out because it turned out that one of the worst music markets in the world was my home country, Sweden. And part of the reason why it was one of the world's music markets was because we had super fast broadband already from the early 2000s. So we were kind of living in the future where people had such quick bandwidth connections that they could download pretty much whatever they wanted.

6. 4:39

   So they were doing it and iTunes actually wasn't even available in the marketplace. So there was literally no legal options. So I think the music industry had lost like 80% or something of its revenues. And so it was like, it was kind of this crazy of, you know, coincidence and kind of all of these things, the conflicts of events where we figured out, you know, that me and my partner, we basically took all of our own money that we had made from prior startups.

7. 5:09

   And we said to the record labels, what if we would guarantee you that basically you'd keep your bonus for the next year and you'll make your budget for next year? if this really is as bad as you think it is, then you just shut it down after a year, but you still made the bonus. And if this actually works, you win as well. So you win no matter what. And they're like, okay, well, this seems kind of like an interesting idea.

8. 5:34

   And eventually, after a few years of negotiation, agreed to it. So we launched in late 2008. And it instantly became a huge hit. We then took it to the UK and made a huge hit there. And then in 2011, 15 years ago now, we launched in the U.S. And yeah, I mean, and the rest is sort of a history. I mean, isn't that amazing, Freiberg?