For the first time since Napster decimated music sales, the recorded-music industry is showing signs of growth, and that reversal of fortune is largely due to one man: Spotify chairman/CEO Daniel Ek.
Against heavy odds, in 2011, the young, tech-savvy Swede convinced the major labels to invest in and support an on-demand subscription model that included a controversial free tier, arguing that it would curb piracy. Ek's model worked -- first in Scandinavia, then Europe, and now in the United States, where Spotify's effect on the music business has been nothing short of transformative: In 2016, streaming accounted for 51 percent of music consumption in the United States, and Spotify dominated the category. The company is adding subscribers faster than Apple, to the point that it now accounts for 43 percent of paid subscribers worldwide, according to research firm MIDiA.
Spotify may also be the only distribution platform in the history of the music business to be truly important as a promotional platform. Thanks to promoted playlists and programs like Discover Weekly, it's becoming the place fans discover music as well as consume it. Even concert ticket sales have been boosted by increased streaming consumption.
"Spotify is taking chances on new artists and promoting our established acts," says Atlantic Records Group chairman/COO Julie Greenwald (No. 15), "and it has been incredibly effective." Ek's June 2016 hiring of prominent talent manager/entrepreneur Troy Carter (No. 51) as global head of creator services was another indicator of its improved relationships with artists -- its 2014 dust-up with Taylor Swift (over its free tier) a fading memory.
Ek, who's known to give presentations in T-shirts, avoids the spotlight. (He declined to comment for this story.) "He's Swedish, he's quiet," says manager Scooter Braun (No. 23), a friend and early investor in Spotify. "But he's very kind and very honest."
With an estimated net worth of more than $800 million, at Spotify's current valuation of $8 billion, Ek is not averse to enjoying his success. Last summer, Bruno Mars performed and Chris Rock officiated at Ek's wedding to longtime girlfriend Sofia Levander, in Lake Como, Italy, where guests included Mark Zuckerberg.
Ek will spend 2017 under increased scrutiny as Spotify prepares to go public, although TechCrunch recently reported its IPO could be delayed until 2018. About a year ago, Spotify issued $1 billion in debt to creditors at a 5 percent interest rate, with the right to convert debt to equity at a 20 percent discount. In March, and every six months after that until the company goes public, the interest rate rises by a percentage point and the stock discount rises by 2.5 percent. In order to go public, Ek needs to show investors a clear path to profitability -- in 2015, the last year for which numbers are available, Spotify lost $200 million on $2.2 billion in revenue. The company could also use long-term licensing contracts with the major labels, which it currently lacks.
Spotify's losses come disproportionately from its free tier, but Ek put customer acquisition above all else, which let Spotify grow its subscriber base fast -- which means that the entire music business now has an interest in its success. If it's not already too big to fail, it's headed in that direction quickly. "I'm surprised at how fast [growth] is happening," says Braun. "But I'm not surprised it's happening."