Spotify (company)
Spotify is a digital music streaming service founded in 2006 in Stockholm, Sweden, by Daniel Ek and Martin Lorentzon. It offers a vast library of audio content accessible via smartphones, computers, tablets, and gaming consoles, operating on a "freemium" model that provides both free and paid subscriptions. By 2024, Spotify had expanded its reach to over 180 countries, boasting 246 million paying subscribers and 626 million active users. The platform transformed music consumption, providing an alternative to traditional CD purchases and reshaping the music industry's revenue model. However, it has sparked debate over artists' royalties, with some prominent musicians expressing dissatisfaction with the compensation they receive from streaming. Spotify also faced scrutiny for its content, particularly regarding misinformation spread through podcasts, leading to public protests from artists like Neil Young. Despite these controversies, Spotify continues to innovate and invest in diversifying its offerings, such as expanding its podcast catalog, indicating its significant role in the evolving landscape of digital music and audio content.
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Spotify (company)
Company Information
- Date Founded: 2006
- Industry: Digital music
- Corporate Headquarters: Stockholm, Sweden (administrative headquarters); Luxembourg City, Luxembourg (legal domicile)
- Type: Public
Spotify is a free and subscription streaming service that makes a vast library of digital music and other audio content available to play on smartphones, computers, tablets, video gaming consoles, and other electronic devices. The name Spotify is a combination of the words “spot” and “identify.” In the first decade of its existence, the streaming service transformed the way people listened to music and reshaped the way the music industry makes its money. By 2012, Spotify’s success had increased founder Daniel Ek’s worth to an estimated $290 million, and he was tenth on the London Sunday Times list of richest men; by 2024, according to Forbes, his net worth had reached $5.6 billion.
Spotify has continued to grow and broaden its appeal. Although the company was originally established in Stockholm, Sweden, it became a truly global enterprise. By 2024, it had set up operations in over 180 countries around the world. Spotify went public in April 2018.
History
Spotify was established in Stockholm, Sweden, in 2006 by Daniel Ek and Martin Lorentzon. Ek, who is considered the driving force behind Spotify, was already a millionaire when he came up with the idea of Spotify. At twenty-two, he had just sold his online marketing firm Advertigo for $1.2 million. Lorentzon was the cofounder of Tradedoubler, the digital marketing company that had acquired Advertigo. Daniel Ek envisioned Spotify as a legal version of Napster, the popular online service from the late 1990s that had offered music selections for free from users’ personal databases. The service introduced online music piracy and helped drive a marked decline in music industry revenue. Ek convinced Napster’s founder Sean Parker to serve on Spotify’s board. Ek obtained an engineer for his new project by acquiring uTorrent, a torrent client service, and he gave cash advances to Swedish artists to convince them to sign deals with the new service.
Spotify operates on what has been termed the “freemium” model, offering both free and paid subscriptions. The free subscriptions offer somewhat limited services and are paid for by advertisements. While the free version of Spotify has a number of restrictions, premium users gain access to shuffle play; they are not required to listen to advertising; they can skip an unlimited number of songs; they may listen offline; and they may play any track from an artist’s available songs. All of these features are available for around $12 a month. A family plan and discounted plans for students are also available. Spotify struck deals with record companies and music publishers for the ability to stream their music. The record companies and artists are paid a certain percentage of the revenue from each song streamed. Spotify insisted that 70 percent of its budget was allotted to paying labels, publishers, and distributors for music rights. However, the amount Spotify paid and the ways the company and similar streaming services impacted artists’ income became a source of controversy.
For its first five years, Spotify built up its user base in Europe. After its creation in 2006, the service officially launched in 2008, after the process of development and establishing rights deals with record labels. Spotify soon offered millions of songs to fit every musical taste, and thousands of new selections were added each day. More than two billion playlists were created, including celebrity playlists. By 2011, the service had grown to over a million subscribers in Europe and was prepping for release in the United States. In May of that year, the company partnered with Facebook. The partnership allowed existing Facebook users to establish a Spotify account through their Facebook account and share music with friends.
After years of building the company up, Spotify launched in the United States in 2011. Building on the explosion of social media and its partnership with Facebook, Spotify allowed users to share musical preferences with a selected group of other users. Spotify also incorporated the popular social media concept of followers, allowing users to follow any artist, as well as other users.
As Spotify gained popularity, it began to acquire other companies. In 2012, Spotify acquired Soundwave, a Dublin-based social network application for music lovers. Two years later, Spotify acquired the Cord Project, a New York-based operation that offered mobile messaging services. In January 2015, Spotify announced an exclusive partnership with Sony PlayStation called PlayStation Music, which offered users streaming access for PlayStation 4, PlayStation 3, and Xperia devices. Additionally, Spotify signed partnership deals with Starbucks and Nike. In 2017, the company struck a deal with video streaming service Hulu to offer a bundled subscription service for US college students.
Subscribers also have access to playlists created by professional deejays for use at parties. Whether searching by musical artist or song title, the service offers users the opportunity to create their own “radio stations” of songs by selected artists.
Initially, Spotify stood out because it is interactive, unlike other online music streaming services like Pandora. Other companies soon followed Spotify’s example. Spotify was challenged by rivals, including Apple Music, which had decades of trust already built up with both artists and users through its iTunes service. Other competition came from such services as Pandora, Amazon Prime Music, Google Play, Deezer, Rhapsody, and Jay Z’s Tidal. Another potential threat to Spotify’s success surfaced when Amazon launched its own full-catalog music streaming service, Amazon Music Unlimited, in October 2016 in the United States. Still, many observers suggested that there was room for many such services as the demand for digital music continued to increase throughout the world.
CEO Daniel Ek made the top spot on Billboard magazine’s Power 100 list in 2017. According to Billboard, at that time, Spotify accounted for 43 percent of all streaming music subscriptions worldwide and was valued at $8 billion.
On April 3, 2018, Spotify (SPOT) listed its shares on the New York Stock Exchange in an initial public offering (IPO), reaching a market capitalization of $26.5 billion. The IPO was considered nontraditional because Spotify offered shares directly to the public instead of indirectly via underwriters and because the company did not impose a lockup period to prevent employees and investors from selling their shares immediately, causing some analysts to fear that the share price would become volatile with high-volume trading. Yet, despite the fact that 90 percent of Spotify’s shares were immediately available for trade, trading did not become volatile, and prices remained relatively stable. According to the company’s website, by 2024 it had 246 million paying subscribers and 626 million active users in over 180 markets.
In a further effort to compete with the likes of Apple Music, Spotify continued to diversify by making more investments in expanding its podcast offerings. By February 2019, it had been reported that the company had acquired the podcast production companies Gimlet Media and Anchor. In 2020, the service signed a major deal with popular comedian and podcaster Joe Rogan, with a reported value of over $100 million. The Joe Rogan Experience established itself as the most popular podcast on Spotify. In 2022, Spotify continued to acquire companies to expand its brand, including those involved in podcast technology, audiobooks, and regulating online content.
Despite its steady growth, Spotify did attract considerable controversy. Along with ongoing complaints from some artists over royalties, the service drew scrutiny for some of its content, especially controversial podcasts. This issue was highlighted during the coronavirus disease 2019 (COVID-19) pandemic that began in 2020, as a variety of podcasts on Spotify were criticized for spreading misinformation about the disease. Other examples of controversial material included misinformation about the 2020 presidential election and various conspiracy theories. While Spotify stated that it made efforts to remove harmful material that violated its terms of agreement, many critics argued that it failed to do enough to prevent the circulation of false and damaging information.
In January 2022, over two hundred health officials and professors sent an open letter asking Spotify to better regulate COVID-19 misinformation, including by making its rules and policies more transparent. Soon after, musician Neil Young publicly criticized Spotify for allowing Rogan to spread falsehoods about COVID-19 and asked the company to remove his music in protest. Several other prominent artists joined Young's boycott, including Joni Mitchell. In response, Spotify reiterated its commitment to removing any dangerous content and published its rules of conduct, but it also defended Rogan and its overall opposition to censorship. Rogan himself suggested he would attempt to feature more balanced viewpoints on his show but would also continue to spotlight controversial opinions. The incident ignited widespread debate over misinformation and the limits of free speech, feeding into the broader culture wars of the time.
Impact
Spotify was established in the post-Napster environment in which artists and labels demanded that copyrights be acknowledged and that they receive compensation for sales of their products. Despite the fact that Napster was forced to shut down, its presence ushered in changes in the music industry. Music users had become insistent that the price of CDs was unreasonable, and they demanded new ways of purchasing music. Spotify offered an alternative to the purchase of CDs by negotiating deals with all major music studios, following a model that Ek called “access-based” versus transaction-based. The model proved immensely successful, effectively changing the way music is consumed by many people by ushering in the era of streaming.
Yet Spotify also proved controversial, with some artists insisting that they saw very little return for their songs being offered on the platform. A few prominent artists, perhaps most notably pop musician Taylor Swift, publicly denounced the service and pulled all of their music from Spotify. (Swift pulled her music in 2014 but returned to Spotify in 2017.) Though the debate as to whether Spotify is helpful or harmful to artists continues, it is evident that the company had a huge effect on the music industry and made online streaming profitable.
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