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Daniel Ek’s brief to investors with Spotify’s future business plan

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Music streaming service Spotify, last privately valued at $19 billion, is slated to go public on 3 April 2018. Spotify’s CEO and Chairman, Daniel Ek said in the presentation given to the investors that Spotify will also skip what he called the “the pomp or the circumstance of it all,” and won’t do any interviews or hold any parties around the time of its listing. However, the company did want the chance to make a case for the role it can play in the music industry, and how it can compete with rivals like Apple Music. Spotify will be using an uncommon method, called a direct listing, to go public.

 

Here’s Spotify’s pitch to investors:

CEO underlined Spotify as a tool for the music industry. Ek’s big pitch on Thursday centered around the idea that Spotify is both good for consumers and for artists. He called Spotify a market place of services for the industry.

“If you’re an artist in search of an audience, you really want to be on Spotify,” Ek told investors.

He described Spotify, which got most of its $5 billion in 2017 revenue from premium subscriptions and advertising revenue, as a “creator experience platform.” He highlighted the company’s data analytics tools, which that give artists vision into how users are listening to their music, and which songs they skip.

“Why does this matter? We all know information is power, and for many it helps bridge the gap between the struggling and the successful,” Ek said.

This is a key pitch for the company, as it gives investors a sense of how Spotify could create revenue streams outside of its consumer audience.

Both Ek and his chief research and development officer Gustav Söderström highlighted that Spotify is a software company, and that this gives it a level of attention that its competitors in hardware don’t have.

“Spotify isn’t focused on selling hardware or selling books, nobody else has more than 3,000 employees focused on just this one thing,” Ek said.

Söderström highlighted a few different ways that Spotify is developing software to create a more personalized product. Among them is its so-called “algatorial approach. That is how Spotify characterizes music curation system for its playlists, which mix algorithms and human editorial curation.

Söderström said “Machines haven’t taken over. We’re leveraging the taste and expertise of the world’s best music curators.”

Already, 30% of all streams on Spotify are alagatorial, he said, which is how they know it’s working.

One of Spotify’s biggest hurdles is that it’s expensive to be in the music streaming business.

Music licensing and royalty fees have cost the company $10 billion since its start, and the company remains in the red as the result. Despite posting almost $5 billion in revenue for 2017, the company lost $1.5 billion that same year.

Anticipating investors concerns, Spotify defended its freemium model, which gives users ad-supported access to free streaming. Since Spotify pays per-stream and per-song, it loses money on these users.

Söderström told investors that this freemium model helps Spotify reach consumers who are still on the fence about paying for music, while giving the company access to their music consumption data.

“The more you play, the more you’re going to pay. It allows us to reach much, much deeper into the market.” Söderström added.

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