Gustav Söderström
speaker
294 appearances
1 recordings
1 series
first heard May 2025
last heard May 2025
Gustav Söderström’s voice in public audio — every appearance, attributed to the second.
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Appearances
I'd love to talk about the evolution of the relationship with the music industry. It's a company that unquestionably has wholesale changed music, which is so interesting and so cool. You've been here a long time. Thinking back to the early days, it's amazing the impact that it's had.
And from an investor's perspective, one of the things that many were always keyed in on, it's just the gross margin of the business. Just how much transfer pricing problem are you always going to have that No matter how big you get, the music industry that owns the IP is just going to always take their same cut of the meat. Talk about how you've thought about that change over time.
It seems like it's been both a good relationship for them, but also a very patient path for Spotify. Maybe just give us the insight into how it's worked and how you think about it.
Yeah, for sure. I grew up and Spotify grew up in the era of piracy in Sweden, which was the worst market. And there's this famous quote from a UK label exec to a Swedish label exec around early 2000, where the Swedish label exec showed the P&L of one of these Swedish companies. And he said, that's not a business. That's a hobby. That's how broken it was.
And that's actually why Spotify could happen because the music industry was prepared to take risk in Sweden. And I want to give a lot of credit to the music industry. They took a lot of risk with Spotify. Spotify took an enormous amount of risk, enormous amount of capital risk. We MG'd a lot. We ate a lot of the risk, but certainly they took a lot of risk.
I think the music industry certainly deserves the success, as does Spotify. I joined in 2008, somewhere around 2012 or something. I started saying that my team, the R&D team, and all of Spotify, we are the R&D department of the music industry. And first people were like, What do you mean? And I'm like, well, look at it. It's an entire industry that doesn't have an R&D department.
Mobile phones has an R&D department. It's called Apple or Google. Everyone has a lot of R&D, but there's no R&D spend in the music industry. And I think that's turned out to be true. And if you look at the trajectory, this year... is the first year of profitability for Spotify since its founding. People say that there's a lot of talk about Spotify sharing enough of the revenue. We share about 70%.
But the truth is the other 30% we haven't kept. We've invested all of that in the music industry and then more. So we were unprofitable. for 15 years. We just invested, invested, and invested. So a ton of patience. And at the same time, actually, the music industry has been profitable. Spotify has been unprofitable.
So I think it's fair to say we are literally the R&D department of the music industry. We invested and had losses for 15 years, and the music industry has been gaining profit. Now, that is not sustainable forever. We needed to get profitable. We can't beat the R&D department of the music industry unless we can have the best machine learning engineers, the best product people, developers, et cetera.
And for that, You need to be profitable. It turns out these people are expensive because they're sought after. We are a very, very patient and long-term company, and we invested for a long time. But it was just time. About two years ago, we decided now it's time for us to become profitable, to take control of our own fate in terms of being able to invest in ourselves.
So yes, we're profitable, but we're actually investing almost all of that back into ourselves. More people, more product, more AI. Now we just have our own investment vehicle instead of having to ask private investors initially or the street for more money. So that's how I think about it. Really, as the R&D department of the music industry, I think we've done a good job.
This year, we paid out over $10 billion. And that's up from $1 billion, I think, almost 10 years ago. It's just steadily increased. The music industry is bigger than it ever was. People still talk about the heyday of music, the CD era. The truth is the music business is bigger than it was back then. So this is the best it's ever been. It is better than ever, more money than ever.
The pie is both bigger and higher, but it's also getting sliced up. But that's because more people take a shot. And it feels very wrong for us to say, no, the crater's up until 2020. They were good, but no one should be able to try after 2020. New creators should be able to try to do music. So that's the dynamic.
And I think a way to think about this is people talk about the per stream payouts and so forth a lot. And Spotify should share more per stream. There are two things that are happening. When other companies say that they share more per stream, the industry doesn't pay per stream. They pay per subscriber. We have more than twice the engagement of our competitive services.
So if you take the same $10 and you listen twice as much as Spotify, the per stream is half. So these other companies have higher per stream because they have a worse product. We've learned from the labels that we have twice the engagement and half the churn of competing services.
So that's a curse where the per stream model is the better we are as a product, the lower the per stream is going to look. But we're looking at the aggregate number, and we're leading everyone else there. We're the vast majority of these payouts. So I think if you look overall, the model is working. We took a lot of investments, and now the industry is getting a huge return.
And Spotify also is profitable now. And the way to grow this pie is now we are closing in on 300 million page subscribers, closing in on 700 million MAUs. There's about 500 million page subscribers, I think, in the world. We're almost 300 of those. But that's half a billion out of the world's population.
If you look at markets like Sweden, on average, you can just look at the public numbers, we convert about 40%. But if you look at the mature markets, it won't give you the exact number, but it is much higher. And if you look at the emerging, it's lower. So the average is 40. That's not the average across the world. That's a blend of low and high converting. And so far throughout our history...
Everything starts to look more and more like Sweden the more time passes. So the solution to this is just to scale it faster. Better free tier that gets more people on, that converts to premium. We think there should be billions of people paying for music. And that's how you make the pie truly bigger. The RevShare is actually a red herring. So let's say that we share 70% today-ish.
Let's say two thirds to make it easier. Even if we were a charity and we paid out 100%, that would only be 1.5x what you get today. So if you think expenditure per stream is too little, even if we were a charity, it would be 1.5. The solution is not the rev share or giving away the vast majority. The solution is to quickly scale the amount of people paying for music.
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