Spotify CEO Daniel Ek Says Direct Licensing With Artists 'Doesn't Make Us a Label'

Daniel Ek
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Daniel Ek, CEO of Spotify attends the Allen & Company Sun Valley Conference on July 12, 2017 in Idaho.

He also said churn rates are down and hinted at more subscription bundles to come during the company's Q2 2018 earnings call.

Spotify CEO Daniel Ek opened the company's Q2 2018 earnings call, looking to set the record straight: The streaming platform is not working to replace record labels, even if it is offering direct licensing deals to artists

After quickly emphasizing Spotify's "two-sided marketplace" strategy and the large opportunity for the global streaming market still ahead, he referenced recent reports about direct licensing and sought to clarify its reasoning. The goal, he said, is to get "as much music on the Spotify platform as we possibly can."

"As a platform, we've always licensed music from rightsholders both large and small, and we will continue to license music from whoever owns the rights," he said. "The long-term success metrics for this platform is growing the number of creators on our platform, growing the number of creators using our promotion, marketing and career-management tools, and the number of artists and labels paying us to use those tools and services."

He continued, "Licensing content doesn't make us a label, nor do we have any interest in becoming a label. We don't own any rights to any music and we're not acting like a record label. Our agreements are specific to Spotify and are not exclusive. We want to grow the number of labels and creators on the platform, as well as the number of creators using our tools and services. So, in some cases we license from labels, and in others from artists if they own the rights to their own music.

"We believe there has been some confusion surrounding our intention and for us its really about providing the largest opportunity for the widest group of creators and artists to bring their music to Spotify." 

Later, an investor asked about reports major labels were delaying Spotify's launch in India as a response to those direct licensing arrangements and their potential to impede their businesses. 

"The goal of the marketplace is to create tools for all types of artists and labels. If you just look at a label today and you look at how labels are investing, one of the largest costs for them is to figure out how to effectively market and promote an artist," said Ek. "The key objective that we're pursuing is taking the data and insights that we're generating on our platform, and creating tools that allow artists and labels to better market themselves in the marketplace."

He continued, "I think this is a huge opportunity for all labels to become more effective. And if they become more effective, that will allow them to sign even more talent and invest even more and then further growing our mission as a company, to allow 1 million creators to be able to live off their art."

Specific to India, without getting into very much detail he described the situation as typical, saying delays have come up in the company's launch in every new market. 

"I think the truth of the matter is: when you deal with licensing in our case, not just [with] one company but you deal with local publishers, local record companies, global record companies, global publishers, it is always a complicated maneuver," he said. "And as much as I would like to be able to say we can accurately estimate on the day when we're going to launch in a market, there's always local considerations.... Delays when it comes to licensing for various reasons is just commonplace in this industry, and nothing related to our overall strategy."

Elsewhere in the call, Spotify's Chief Financial Officer Barry McCarthy responded to reports the streaming service's churn rate has been increasing as a result of increased competition in the marketplace from Apple, Amazon and others. 

"Churn in the quarter was down year over year," he said. "I want to talk specifically about the U.S,, since I've seen a couple of news articles reporting an increase in churn as the result of Apple competition. It, in fact, is not what happened. we also have seen improvement in the U.S."

Ek also spoke about competition, saying, "Our global subscriber growth continues to be really strong and we continue to meet our growth goals for the business.... In the U.S. in particular we're also performing well and growing rapidly and the U.S. churn continues to decline year-over-year and is now under 4 percent." 

"A good metric is to look at the total amount of Spotify users we have. We are now at 2x the size of our nearest competitor in regards to that. The streaming market still feels very much in the early stages and we are the largest global streaming platform and we expect our leadership to continue going forward."

Looking ahead, McCarthy hinted at more technology acquisitions to come that would help "to achieve faster the strategic objectives for the business," while Ek noted more bundle deals -- like Spotify's joint subscription deal with Hulu -- would likely be coming. 

"We're very encouraged by the early results on both launches, both the Hulu student plan and now the Hulu standalone plan," said Ek. "This is a huge part of what we're doing, which is trying to find ways to bring more value to our members on the subscriber base. We don't have anything to announce [on new partnerships] but you should look at it as part of our strategy."