Spotify CEO: Music access, not ownership, is the future

July 21, 2011: 1:59 PM ET

Daniel Ek, the CEO of the online music service Spotify, has ambitious plans for penetrating the U.S. market. Profitability, for now, isn't a concern.

Daniel Ek

Daniel Ek

FORTUNE -- One week after Spotify launched in the U.S., CEO and co-founder Daniel Ek discussed his company's rapid growth at Brainstorm Tech in Aspen, Colo.

The simple, legal "all-you-can-eat" music service has made waves in parts of Europe with a freemium model that lets users listen to over 15 million tracks for free, compared with services like Rhapsody and Rdio that require upfront monthly paid subscriptions. Spotify in the U.S. currently offer three distinct tiers: a free ad-supported service that unlike the European version does not enforce a monthly listening cap, a $4.99 ad-free version for desktop listening, and a $9.99 "Premium" plan that that also lets users stream and store songs to mobile devices.

In his interview today, Ek emphasized how Spotify's model is disrupting the industry, pointing out that despite the widely-held belief that the music industry is in decline, people are listening to music now more than ever.

"In the history of music, it's been about how you need to buy this record or song," he said. "What Spotify is saying is ownership is great, but access is the future." In opening up the company's entire music catalog to users without them having to pay a cent, he believes they'll listen to and discover more songs, albums, and artists and eventually get so hooked they'll want to go "Premium."

Spotify is now in eight markets, with Ek admitting that the U.S. launch took up the vast majority of the company's recent efforts. (In fact, Ek first promised a U.S. launch nearly two-and-a-half years ago.) That's due in no small part to drawn-out negotiations with record labels, which were reportedly concerned about the service's freemium model and whether that would translate into revenues for them and artists.

Apparently, it was promising growth abroad that swayed them. To date, Spotify reaches more than 10 million users, 1.6 million of which pay. The company hopes to amass 50 million more users during its first year of U.S. operations. (Ek declined to specify just how he plans to achieve that ambitious goal.)

And though he would not break down the numbers -- indeed, he would not even specify whether the company is currently profitable -- he did envision the majority of revenues going back to labels and artists, referencing Apple's (AAPL) revenue-sharing model: 70% back to say, app developers, with Apple taking 30% for itself. The issue was of particular interest given Pandora's own financial struggles: Despite ads and growing revenues, the 11-year-old digital radio company has never turned a profit and actually incurred $92.1 million in losses since it was founded in 2000.

On the subject of competition, particularly from big companies like Apple and Google (GOOG), he insinuated that companies that do one thing well often do better than companies that try to do multiple things. As for Pandora (P), he says both services are complementary.

"In the old world, you had radio and record stores," he said. "In the new world, a different world, you have services like Pandora which is clearly radio. With Spotify, all we really care about is we want to manage your music. We want to hold your music collection.

To further that, the company is focusing on tools to build music libraries faster and make the service more social beyond the playlist-sharing features in the current apps.

"There are two megatrends: social and connected devices," said Ek. "The main reason people want to pay is portability. ... With social, when people interact, the more music they share, the bigger library they build, and the bigger value Spotify becomes. The music service that is the simplest, fastest, and most social -- that's the one that will win.

Read the full transcript here or watch the video:

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About This Author
JP Mangalindan
JP Mangalindan
Writer, Fortune

JP Mangalindan is a San Francisco-based writer at Fortune, covering Silicon Valley. Since joining in 2010, he has written on a wide array of topics, from the turnaround of eBay to the evolution of net neutrality. A graduate of Fordham University, Mangalindan has also written for GQ, Popular Science, and Entertainment Weekly.

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