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nual growth in both categories tops 30%, and
the company keeps a tight enough lid on fixed
costs so as not to outpace revenue growth.
But, as industry observer Ben Thomp-
son pointed out last year in his Stratechery
newsletter, Spotify’s upside is limited by its
marginal costs—that is, the royalties it pays
the record labels from which it licenses the
vast majority of its music catalog. Despite its
impressive continued growth in terms of us-
ers and revenue, Spotify’s margins are “at the
mercy of the record labels,” Thompson wrote,
and its losses are growing in absolute terms.
Wall Street has grown concerned as well,
with more than one analyst arguing that the
company needs to lower royalty rates to justify
its market value. “We can all contemplate
ways that Spotify could one day add in higher
margin products to their business,” says
Deutsche Bank analyst Lloyd Walmsley. “We
just haven’t seen any real signs of that coming
to fruition.” Spotify and the labels are in the
middle of negotiating their next two-year deal,
and the talks promise to be intense. While
Spotify is bigger than ever, the increasingly
fierce competition it faces from Amazon, Ap-
ple, and others gives the labels new leverage
As one music industry executive with con-
tinued ties to the company puts it: “Spotify is
one fail away from becoming less relevant.”
J
IT SEEMS APPROPRIATE that Cecilia
Qvist is calling from the future.
Qvist, who serves as Spotify’s global
head of markets, is speaking to me
via videochat from Japan, the world’s second-
largest music market but a late bloomer when it
comes to streaming adoption. It’s 6:30 a.m. in
Tokyo; fledgling rays of sunlight peek over her
pixelated shoulders. Qvist explains why Japan
represents such a big opportunity for Spotify.
“Japan has been a very physical market,” she
says. “We have the ability and opportunity to
show them things they haven’t seen before.”
The land of the rising sun isn’t the only place
where Spotify believes it can dazzle new users.
The music industry considers at least a third of
the top 10 global music markets to be imma-
ture when it comes to streaming adoption, ei-
ther because of a lingering love of CDs (Japan)
or lagging technical infrastructure (Brazil).
That’s good news for Spotify, which is
under great pressure to show that, category
dominance now achieved, it can reliably turn
Eight years after launching in the U.S., Spotify dominates
the global streaming market. But it wasn’t the first mover in
digital music. Here, some major milestones. —Aric Jenkins
A BRIEF HISTORY OF MUSIC STREAMING
1993 – The Internet
Underground Music
Archive launches as a
platform for unsigned
artists to share MP3-
formatted tracks to
the public, free of
charge.
1999 – Sean Parker
and Shawn Fanning
found Napster, a peer-
to-peer file-sharing
service that allows
people to access MP3
files for free. The site
is shut down in 2001
after being sued by
rock band Metallica.
2003 – The iTunes
Music Store launches
to sell digital music for
Apple’s iPod, legiti-
mizing the practice of
accessing music from
an online platform.
2005 – Internet radio
ser vice Pandora de-
buts. It features algo-
rithm-based playlists
as well as a “ freemium”
model allowing con-
sumers to listen to
music either for free,
with ads, or uninter-
rupted with a monthly
subscription.
2008 – Swedish en-
trepreneur Daniel Ek
launches Spotify in
Europe. Rather than
pay artists a fixed
price per song or al-
bum, his business
model pays out royal-
ties based on the
number of streams.
2011 – Spotify debuts
in the U.S.
2014 – Spotify
reaches 40 million lis-
teners and 10 million
subscribers, but suf-
fers a blow when Tay-
lor Swift pulls her mu-
sic from the platform.
2015 – Rival stream-
ing ser vices Apple
Music and Tidal (the
latter backed by Jay-Z
and Beyoncé ) hit the
market.
2018 – Spotify goes
public via a direct list-
ing. Meanwhile, Drake
becomes the first art-
ist in histor y to reach
50 billion streams
across all platforms.
2019 – Amazon
launches Amazon Mu-
sic HD with lossless
audio, joining Tidal in
the high-quality
streaming market.
EK: KEVIN MA ZUR
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JAY-Z: THEO WARGO
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