Lunch with the FT

September 27, 2013 2:19 pm

Lunch with the FT: Daniel Ek

The founder of Spotify talks about ‘stupid mistakes’, changing the music business and why ‘screwed-up’ healthcare might be next. Plus, listen to his current top 10 favourite tracks
Illustration by James Ferguson of Daniel Ek©James Ferguson

The elevated railroad that once ran down Manhattan’s west side was known as New York’s “Life Line”. Erected in 1934, it brought meat and other merchandise to the city’s warehouses from across the US. The last turkeys were unloaded in 1980 though and weeds grew over the steel strip between the West Village and Chelsea until 2009 when, renovated by wealthy locals, the Life Line reopened as the High Line, a fashionable urban park.

The High Line has helped to gentrify the area where Daniel Ek, the Stockholm-based founder of Spotify, now has his second home, so a Texas-style barbecue stand is as close as we will get to evoking the old meatpacking district. The Smokeline stall, set up by Brooklyn’s Delaney Barbecue, is one of a handful of food outlets that occupy a tunnel running through a former Nabisco building.

Spotify’s first New York office was in the neighbouring Google building and Ek is fond of holding meetings while walking along the mile-long High Line. He rarely eats here but it is an excuse to enjoy the warm September day while cobbling together an unusual Lunch with the FT from several locations. The Smokeline menu is bare-bones and we choose two takes on the same meat – a brisket sandwich for Ek and the Deckle (fattier brisket in a toasted bun) with potato salad for me. He orders a Coke Zero and I opt for an apple and ginger soda from another stand before we head to a shaded corner bench just off the path.

Ek launched Spotify, which offers more than 20m songs for online streaming, in Europe in 2008. It took longer to persuade record labels to license their songs for the US and he initially set up a New York base at the nearby club Soho House, shuttling between there, London and Stockholm. The company finally launched in the US in 2011 and now has 250 staff working, a few blocks from where we meet, in a newly opened loft with Silicon Valley flourishes – including a Metallica-themed pinball machine and a lime-green mural charting growth. At its last update in March, the service had 24m active users and 6m subscribers, each paying up to $10, €10 or £10 a month.

Spotify has raised money from Li Ka-shing, the Hong Kong billionaire, and Sean Parker, the Napster and Facebook veteran, at valuations of up to $3bn. Ek will not comment on reports of a new fundraising at a $5.3bn valuation and when I ask him how much he owns, he claims not to know. “Maybe 12 to 14 per cent, something like that,” he says. Either way, he is, at the age of 30, worth hundreds of millions of dollars. He is friends with Facebook’s Mark Zuckerberg, who sometimes drives him to meetings in Palo Alto.

Ek says Spotify will pay $500m to labels and artists this year yet the debate that delayed his US launch remains unsettled. Can he live up to his promise of building a new subscription revenue stream for the shrunken music business faster than he cannibalises CD sales and digital downloads?

. . .

Ek got his first guitar aged four and his first computer at five, and started his first business at 14. Growing up in Ragsved, a “pretty rough” Stockholm neighbourhood, he stumbled into designing websites, teaching fellow students Photoshop and programming skills so they could help him. He spent the profits on video games “but it was boring after a while” and he soon had to incorporate the business “because the tax authorities started asking questions about where all the money came from”. By 16, he was earning more than his father, a mechanic, and his mother, a childminder, combined.

Around this time, he heard about a search engine called Google and applied for a job but was turned down because he did not have a university degree. “At the time I was quite rebellious and didn’t take no for an answer, so I said, ‘I’m going to compete with them,’ ” he recalls. “That obviously turned out to be a lot harder than I’d thought.”

He started an online marketing company, using the cash it generated to fund his experiments in indexing the web. “For a while I was recording every single TV show that was aired in the world ... It turned out that legally that was a hard problem to solve,” he deadpans.

. . .

Ek sold his business in 2006 to TradeDoubler, an internet marketing company, but became frustrated at working for others. He and Martin Lorentzon, TradeDoubler’s founder, met a developer called Ludvig Strigeus who had built a file-sharing client called uTorrent. Running a torrent site was not the most obvious way to win the trust of record labels whose profits had been pummelled by illegal file sharing but Ek briefly became uTorrent’s chief executive while Strigeus began to build Spotify.

Getting a streaming service off the ground after the music industry’s battles against the likes of Napster was, says Ek, taking a forkful of brisket, “much more of a rights problem than a technical problem. When I walked in there and told them that they should give away their music for free in the hopes that someone would eventually want to pay for it, that was a pretty tough proposition.” I bite into my own bun; the satisfyingly peppery beef is spiked with thick rounds of raw onion and slices of pickle.

In his pitch, Ek, who as a young Daft Punk and Radiohead fan spent hours taping songs from the radio, argued that Spotify’s service could supplant piracy. Licensed digital music services were, he explains, typically constrained by poor audio quality and digital rights management software. So “for the first time in history, you had a legal product that was worse than the one you stole”.

He also believed that if he offered music free with advertising on users’ desktops, many would pay for the convenience of having it ad-free on their iPhones. Ek was a big Apple supporter but Steve Jobs, the iPhone’s creator, had mocked the idea of music subscriptions and the Swede’s business model was a bet on Apple’s guru being wrong. “Jobs was a brilliant guy ... but he was also very famous for saying constantly that something was wrong and then six months later doing it himself,” says Ek.

“I think this is a generational question more than anything else,” he continues. “I was the first real generation to have their teens on the internet.” Fast broadband and mobile connections came to Stockholm before New York, so “I saw it 10 years before everyone else did”. Yet Ek, who learnt his Swedish-American-accented English from MTV, is aware of a different generation coming up behind him. “I still see myself as a young person and someone that’s in tune with what’s going on but I’m more and more coming to the realisation that I’m really not,” he says. His brother, who works at Spotify, has just turned 20 and, says Ek, “his concept of what’s socially acceptable behaviour on the internet is totally different than mine.”

Ek explains how that very morning he was given Google Glass, the spectacle-like experiment in wearable technology, but admits: “I still think the people that constantly wear them look a bit like dicks, to be honest.”

He predicts, however, that wearable technology will have a huge impact. He is already “pretty crazy about self-monitoring”, using the Wii Fit scale and the Fitbit sleep monitor. “I think in 30 years we’re going to look back and say that the way doctors are treating us now is close to witchcraft,” he says, pointing to the opportunity to use patients’ DNA details to inform diagnosis and prescriptions.

Ek spends spare hours thinking about how to fix a “screwed-up” healthcare system, reading PhD papers on genetics and DNA sequencing. He is vague on whether this “pet project” could be the germ of a new company, saying it may take five to 10 years to have the necessary technology. “I’m not the inventor,” he adds, “but I may be the person that’s dumb enough to go against the system and try to beat it on its own terms.”

. . .

For now, he is committed to Spotify. “We have had offers”, he says, but “what I want to do with Spotify is complete this thing.” What about taking the company public, I ask, hoping to resolve the speculation that Spotify could be the next high-profile initial public offering?

“It depends on how you go public,” he answers, beginning a detailed appraisal of the differing market fortunes of Google, Facebook and Zynga. In as close to a hint he will get that an IPO is not imminent, Ek frets that the market “is too much geared for quarterly capitalism” and says Spotify could not have been built as a public company. It holds quarterly investor calls, much like a quoted company, but for the past three years, he says, being private has been better “in pretty much every regard”.

Pointing to forecasts that another billion people will come online in the next three years, he adds: “We’re just at the beginning of this journey ... This is the time to invest.” Indeed, while Spotify’s sales shot from €190m to €435m in 2012, its net losses grew from €45.4m to €58.7m as Ek poured money into new features and opening in more countries.

With launches in four markets this week, including Argentina and Turkey, Spotify is now in 32 countries, and he sees opening up emerging markets as the best chance of restoring the music industry to its former size. Though Ek’s home market of Sweden is also capturing the industry’s attention. In the first half of 2013, streaming services accounted for three-quarters of the country’s recorded music revenues, driving growth of 12 per cent in an industry accustomed to double-digit declines.

As a tourist poses for a photo on the bench behind Ek, I ask if the rest of the world will follow Scandinavia. “I believe so,” he replies, hailing Sweden as an example of how fast broadband changes consumer behaviour. “What’s happened in music is about to happen in video too,” he adds, noting that he can now watch English Premier League games in Sweden without a cable subscription. (He has followed Arsenal since fellow Swede Anders Limpar played for the club in the early 1990s.)

Ek has been picking at his brisket but the slabs of soft, pale bread are untouched and he has put his knife and fork together. I ask if he wants dessert from a nearby cart offering paletas, or Mexican ice pops. He chooses the mango-chilli, while I opt for cucumber-lime and we stroll north past a large Gilbert and George mural.

. . .

We talk as we walk about whether Apple has lost its knack for innovation. Ek doubts it but says “there’s not many more screens they can take” unless they start making television sets or cars. He will try Google’s driverless car, he adds, but he is a sports car lover, currently driving a family-friendly Porsche Cayenne after the birth of a daughter three months ago.

His girlfriend is a Swedish journalist who wrote to Ek after he was “very non-responsive” when she approached him in a restaurant about an interview. “She wrote me this long email about how rude I was and how stuck-up and things like that, and that caught my interest,” he says.

A few artists, however, are still at the angry email stage, convinced that Spotify pays them too little. Nigel Godrich, Radiohead’s producer, said this month that he was taking some of his bands’ albums off Spotify because “it’s an equation that just doesn’t work”, especially for new artists.

Ek says: “I’m saddened about it because you don’t start a music company if you think you’re going to be filthy rich. We’re still paying out over 70 per cent of all the money we’re making, so I’m not ripping anyone off.”

He concedes it can take 200 streams to generate the 99 cents a download would earn but says many artists miss the fact that Spotify is expanding the market by making money from people who never paid for downloads. “We had similar debates in Sweden, too, but they stopped happening about two years ago”, he says, when streaming revenues took off.

The heat is melting our ice pops faster than we can lick them, and Ek keeps glancing down to check whether his has dripped on his clothes. The airline lost his luggage, and a colleague has given him an oversized black polo shirt to go with his jeans and white sneakers. The clothes look untouched but we throw away the ice pops unfinished. At 30th Street, we reach the end of the line and turn around.

Could Spotify’s opportunities include video, I ask? “We’ve got the components,” he says, pointing to its record of converting one in five users of its free service to paying subscribers. But with 1bn new consumers still to chase, music remains “my primary focus and my secondary focus as well”.

We make our way back to the shade of the tunnel of food stands. I order an iced coffee and Ek orders a drip coffee. As we wait, I ask whether he will be running Spotify at 40. “I certainly hope so,” he says, adding that he feels lucky to have learnt from the “stupid mistakes” he made after having so much money so young. “Buying sports cars, going to expensive nightclubs, spraying people with champagne and things like that: what I learnt is that it wasn’t for me and, in fact, I feel pretty empty after doing that.” Instead, he says, he wants to spend his life exploring subjects that pique his curiosity – be it graphene, neurosurgery or Charity Water’s work in Ethiopia, “and just try to suck in as much as humanly possible”.

The streaming pioneer, who sees himself at the centre of what he calls “the single biggest shift that happened to the recording music industry since the invention of the recording”, still hopes to prove to his musical heroes that he is on their side. I ask if Daft Punk have become Daniel Ek fans. “Yes. Well, that is what I want because ultimately I want to come back to a place where artists can afford to create that amazing record.”

Andrew Edgecliffe-Johnson is the FT’s media editor

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The High Line

New York

Delaney Barbecue’s Smokeline

Brisket sandwich $12.00

Brisket in toasted bun $10.00

Coke Zero $2.50

Brooklyn Soda Works

Apple and ginger soda $4.00

La Newyorkina

Paletas x2 $7.00

Blue Bottle Coffee

Drip coffee $2.90

Iced coffee $4.00

Total $42.40

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