Brilliant Sweden
WHEN SPOTIFY CELEBRATED TEN YEARS as a company in April 2016, streaming had just become the largest source of revenue for the American music business. Growth had returned to an industry that had been shrinking nearly every year since 1999. Daniel Ek’s promise to the label heads—that he would revive the industry—was now fulfilled. The music service founded in Rågsved in 2006 had thirty million paying customers, nearly three times as many as Apple Music.
Spotify’s origin story often revolved around its celebrated founder Daniel Ek and his coming-of-age in Sweden. He would frequently laud his nation’s public music education—where he learned to play instruments—and muse on how the means of distribution, which would save the music industry, came from the very nation where piracy had been so rampant.
Yet the Spotify CEO had an ambivalent relationship with his home country. He was operating in a global market and struggling to recruit the talent he needed in a country that didn’t always make things easy for him. Stock options, a vital incentive for hirers in the technology industry, were taxed higher in Sweden than in other countries. Stockholm’s persistent housing shortage was another constant problem in trying to lure talented programmers to the Spotify head offices.
Change was already underway. During 2016, Spotify’s new CFO, Barry McCarthy, began to move the company’s finance department to New York—where he planned to execute his still highly secretive plans for a public listing. Representatives for the Stockholm stock exchange, which was owned by Nasdaq, regularly courted Spotify to see if they would be interested in registering there. They even offered a dual listing in Stockholm and New York, but it was clear from the outset that the Spotify leadership had their eyes set elsewhere.
Meanwhile, a tug-of-war was underway inside the company over which cultural norms should be given priority. Two strong advocates for keeping the company’s Swedishness were Martin Lorentzon and Katarina Berg, the head of HR. Katarina was not a typically Swedish, consensus-oriented leader—she often let underperforming employees go—but she was eager to preserve the company’s Swedish heritage. And then there was Barry McCarthy, who ruled with an iron fist, American-style, and rarely held back in expressing controversial views. Daniel seemed to think Spotify could combine the two sets of values and forge its own style.
Changes
In June 2016, staff laid out a black carpet that circled the block of the swanky Grand Hotel on the Blasieholmen peninsula in downtown Stockholm. On it, pictures of a few dozen famous Swedes were imprinted: Greta Garbo, Zlatan Ibrahimović, Max Martin, Alicia Vikander, Hans Rosling, and many others. The carpet ran from the entrance to the hotel, across from the Royal Castle, up to its back entrance, leading into the lush Winter Garden event space, with its glass ceiling and stone pillars.
In a conference room on the first floor, Daniel Ek was about to welcome mostly foreign journalists to a celebration of Sweden’s exalted position within popular culture and technology.
“For me, this is about paying it forward,” the Spotify founder said, seated at the front of a lounge with powder-pink colored walls.
The thirty-three-year-old, by now an icon of the modern Swedish business world, had begun to understand how he might exert his influence. Over the coming years, Brilliant Minds would be his way of positioning Spotify in the societal debate, while promoting Sweden as an exciting place to live and work. “Welcome to the creative capital of the world,” read the banner behind him during this introductory press conference.
Tickets to Brilliant Minds were not freely available. The price, for those who had their applications accepted, was said to be thousands of dollars. But most participants had been specially invited by Daniel or his co-organizer Ash Pournouri, a music manager who rose to fame with Tim “Avicii” Bergling, another superstar of the contemporary Swedish music world. The guest list was handled by Natalia Brzezinski, the chief executive of Symposium, the annual week of events that culminated with two days of the Brilliant Minds conference. The trio had created a forum that brought together the upper echelons of Swedish corporate and cultural life, old and new. The three of them sat at a long table in front of the gathered journalists.
The room listened intently as Daniel spoke. He recounted how people abroad often would ask him how Sweden had managed to produce not only H&M and IKEA, but also a wave of young tech companies with valuations in the billions. He mentioned the Swedish gaming company DICE, which created Battlefield after being acquired by Electronic Arts, and Minecraft, created by Mojang at their offices in Södermalm. Switching to music, he brought up Spotify, SoundCloud, and Tidal.
“It’s something in the culture, more than anything else,” he said, pointing to Sweden’s heritage within technology, tradition of wealth redistribution in politics, and appreciation for the importance of creative industries.
“The only way to experience it is by getting people to come here.”
Attendees at Brilliant Minds 2016 included Google’s former CEO Eric Schmidt, the Swedish actress Noomi Rapace, and Marcus Wallenberg, the chairman of the leading Nordic corporate bank SEB. The conference gave Daniel Ek the chance to showcase the business models of the future. Several Swedish startup founders, such as Zound’s Konrad Bergström and Niklas Adalberth of the fintech unicorn Klarna, were also present. One constant theme was how Sweden’s welfare system worked to encourage risk taking.
“The worst that’ll happen is that you will fail, but still be able to live in your apartment and put food on the table. That encourages you to take risks. And some of those risks pay off as world-famous companies,” Daniel said.
The CEO of Symposium, Natalia Brzezinski, had spent more than a year consulting in various roles promoting Sweden as a pioneer in her home country, the United States. She did it through interviews and conference appearances, drawing on the network she built while serving as the wife of the former US ambassador to Stockholm, Mark Brzezinski.
“Barack Obama said the world can learn something from the Nordic region. For us that was so powerful, and very much the thesis of what we’re trying to do,” Brzezinski said. She was well-positioned to carry out cultural diplomacy between the two countries. Her sister-in-law, Mika Brzezinski, was a renowned host of Morning Joe on MSNBC, one of the biggest morning shows in the US. Her father-in-law was the esteemed political strategist Zbigniew Brzezinski, who once served as National Security Advisor under President Jimmy Carter.
Sweden’s ruling class was clearly present throughout Brilliant Minds ’16, during which they mixed with international music stars. At a dinner party in the stately Djurgården home of the Bonnier family, heirs to a publishing dynasty, the former Swedish foreign minister Carl Bildt mingled with Prince Daniel, investors such as Kinnevik’s Cristina Stenbeck, and the legendary music composer Quincy Jones. On another evening, Wyclef Jean was seen enjoying a meal alongside Fred Davis, the early Spotify advisor, at a restaurant overlooking the city.
The whole event was lavish but casual. In the Winter Garden at Grand Hotel, where the annual Nobel banquet was once held in the early 20th century, decorative spotlights lit up the symbol of Symposium: a large, human head in white plastic, built layer by layer as if created by a 3D printer.
On stage, Daniel Ek interviewed one of his heroes, pop star and music producer Pharrell Williams. But for the most part, the Spotify CEO stayed in the background, quietly exchanging words with friends and acquaintances. One of us, there to cover the event, watched as Daniel’s confidant Shakil Khan moved through the room, offering warm greetings to many familiar faces. One of Soundcloud’s founders, Eric Wahlforss, passed by in between panel discussions on leadership, artificial intelligence, and data-driven creativity.
As a young boy, Daniel had dreamt of becoming bigger than Bill Gates. He was now recognized as a pioneering business leader, and the world around him was interested in his thoughts about where society was headed. How might new technology help prevent the root causes of disease, and not just relieve symptoms? What happens when machines make a hundred million people redundant within the transportation sector? No quandary seemed too far-fetched to consider.
“We’re trialing six-hour work days, which I think is related to the future,” Daniel said during the introductory press conference.
If more countries followed the example of the Swedish labor market, he added, parental leave would become more commonplace. That would in turn give people more free time to explore their creative interests.
“I think society would greatly benefit,” Daniel said.
For several years, Daniel had spoken enthusiastically about innovation within the health-care sector. He would take frequent blood tests and once said that he underwent annual MRIs as a way of keeping tabs on his health. Some people said he had become a “health freak.”
In 2016, he would also start frequenting fashionable fitness centers: Equinox in the US and Balance in Stockholm. Balance was founded by entrepreneur Daniel Westling, who would become Prince Daniel when he married the Swedish Crown Princess, Victoria.
Ek would often hit the gym with Moha Bensofia, whom he and his fiancée, Sofia Levander, had helped rush out of Libya a few years prior.
“Personal bests broken daily!” Bensofia declared on Instagram, as Daniel posed for a mid-workout photo, flexing awkwardly into the camera. He was still a little stodgy, but the transformation had begun.
The couple had welcomed Bensofia into their family, and would refer to him as an uncle to their two daughters.
That same year, Sofia Levander invested in the Swedish company Werlabs, whose tests measured anything from blood fats to vitamin levels. The money came from Daniel’s new holding company which, like the one before it, was registered in Cyprus. A new parent company had been registered in Malta.
Daniel Ek had begun to free himself of the structures that Martin Lorentzon once helped him to put in place. According to some sources, Daniel no longer wished to be tied to his co-founder, who, according to one source, helped Daniel manage his personal finances in the early days.
Loyal above all to each other, Spotify’s founding duo had always kept their disputes from the outside world. Yet Martin, while happy to dedicate himself to company parties, was said to sometimes question Spotify’s lavish corporate culture, with teams flying across the world for internal conferences. But free spending had become the norm at companies such as Google and Facebook, and Daniel saw them as Spotify’s peers. The CEO was anything but frugal in his approach.
“Perception is reality,” as one of Daniel’s favorite sayings went, according to one source.
To some, Daniel appeared to be levitating. Many of his old friends and coworkers had begun to wonder who truly remained in his inner circle. Daniel appeared isolated in Sweden outside of his family. On the rare occasion that he showed up when old friends were celebrating their birthdays or weddings, he would seem uneasy. And hardly anyone out of the old group of friends had been invited to his upcoming wedding in Italy.
“He seems to think everything he says will end up being published somewhere,” someone who knew Daniel during the early Spotify years would recall.
Daniel Ek had matured in tandem with his wildly successful company, and was looking to broaden his horizons. He appeared to enjoy closed circles, rubbing arms with other business leaders and creators facing similar challenges to his own. The Swede’s ambitions still knew no limits. He wanted Spotify to change the world of music and entertainment for generations to come. What mattered was “impacting culture,” as he would describe it in interviews.
At the Brilliant Minds press conference, Daniel returned to one of his favored topics: successful Swedish entrepreneurs selling their companies to foreign owners.
“The thing that excites me about Stockholm is that we’ve had a couple of exits, you know, Minecraft and Skype,” he said before offering some advice to Swedish founders.
“The number one advice I tell everyone is ‘don’t sell.’ That’s the number one problem we have. All of these things could go gigantic if they keep doing what they’re doing.”
It was the same argument he had put forth to tech journalist Kara Swisher in London seven years prior. Since then, he had negotiated with several tech giants, but had never been truly close to a sale. With the benefit of hindsight, the Spotify founder said he was tired of seeing US corporations gobble up the hottest startup companies in Europe as soon as they showed enough potential.
He had, however, begun to sell off some of his shares in Spotify. During 2013 and 2014, Daniel had sold shares for nearly $50 million via his holding company in Cyprus. The transactions were hidden from public view until one of this book’s authors reported on them for the financial press.
Some of that money may have gone toward his new summer home on the island of Värmdö, southeast of Stockholm. In November 2015, Daniel paid more than $5 million for a waterfront villa that was nearly 4,000-square-feet, on a property spanning more than three acres.
The seller was Kalmar Investments Limited, a corporate entity registered in the British Virgin Islands. According to two people, it belonged to the Skype founder Niklas Zennström.
In the second row of journalists at the press conference, an American reporter with the news agency Reuters raised her hand. She asked Daniel to clarify what he meant.
“So, you’re not going to sell?” she asked.
“Not going to sell, no,” the Spotify founder said, with a coy smile.
Whatta Man
Spotify’s tenth anniversary was marked by Celebration X: a week of festivities for the company’s employees, in and around the Stockholm area. This was Martin Lorentzon’s chance to showcase Swedish summer traditions to all of his staff. The co-founder took on the role of ringleader as over two thousand staffers celebrated Midsummer, a Swedish pagan tradition, with a ring dance at the Tele2 Arena in southern Stockholm.
Martin held court on a small stage in the middle of what usually served as a soccer field, surrounded by a Swedish folk band in traditional garb. As they played the Midsummer classic “Little Frogs,” coders and product designers from around the world squatted and hopped along. Lorentzon gave an emotive speech in honor of his home country before everyone took a seat to enjoy pickled herring and aquavit schnapps in the sunshine, surrounded by thirty thousand empty seats in the stadium stands. Celebration X had quickly become a crash course in Sweden’s unique and often drunken summer traditions.
Over the course of the week, Spotify’s employees visited classic Stockholm establishments such as Operakällaren, an upscale restaurant behind the Opera House. One evening, they took ferries to the fortress of Vaxholm, a piece of early modern Swedish military history located on a strategically placed island in the archipelago. The staffers also sang karaoke, with hundreds joining in on a loud rendition of Queen’s “We Are the Champions”. Many got the chance to take selfies with Daniel Ek and Martin Lorentzon.
During the closing party, held at a warehouse location in southern Stockholm, loud cheers rang out as Justin Timberlake made a cameo on stage.
“I’m very happy to be here with Daniel and you guys. And as we say in Stockholm: skål, för fan!” he said, raising his glass for a toast in the local language. Backstage, the pop star learned to say “I raise my little hat” in Swedish, a feat that was documented and later uploaded to Instagram.
Closing out the last night of Celebration X were the electronic DJs Axwell & Ingrosso, two members of the Swedish House Mafia. As their hit, “Sun Is Shining,” approached its climax, smoke began to pour out of cannons placed at the front of the stage. Laser beams began to flash, a costly array of pyrotechnics was triggered, and Spotify-green confetti rained down from the ceiling.
Martin Lorentzon’s role at Spotify had become increasingly ceremonial. A few months prior to Celebration X, he had quietly stepped down as chairman. Daniel was now both chair and chief executive, a rare combination in Swedish corporate life, but common among publicly traded companies in the United States. By the fall, after discovering corporate filings in Luxembourg, the Swedish business weekly Affärsvärlden reported that Martin Lorentzon had stepped down to take a regular board seat. The Spotify co-founder had no choice but to address the matter publicly.
“I look forward to another ten years with Spotify as vice chairman, and the daily walks and talks with @eldsjal,” he tweeted, in Swedish, tagging Daniel, whose nickname in most social media channels means “passionate enthusiast” or, more literally, “firesoul.”
Over the following years, Martin’s influence would decrease further. At the end of May 2017, he attended a seminar on politics on the tree-lined street of Strandvägen, which ran along the water and featured the grand apartment buildings that had been the homes of the Swedish business elite for more than a century. After the discussion, the Spotify co-founder was approached by Swedish Radio.
“I believe there is a shortage of two hundred thousand software developers in Sweden,” Martin said during the interview.
Asked when Spotify’s IPO was due, Martin dismissed the issue outright.
“We have not gotten anywhere at all and there is nothing to comment on about that,” he said.
His answer did not add up. Over the past several weeks, newspapers such as the Financial Times and the Wall Street Journal had revealed details about Spotify’s preparations to go public. Asked once again about the listing, Martin said the information had been taken “out of thin air.”
“I guess you have to take the press with a pinch of salt. I’m not saying it’s fake news, but half of what the media writes is usually correct, while the other half isn’t,” he said.
The headline—“Spotify Denies Listing Plans”—did not go down well with the company’s communications team. Soon, Martin’s comments were reprinted elsewhere. Within a few hours, the press department had sent out a retraction, noting that a public listing was, in fact, “a possibility.”
“Martin is our co-founder and a board member, but not a spokesperson for the company,” the press release read.
Only a few years prior, Martin Lorentzon could speak freely for Spotify, in which he was still the main shareholder. Now he faced the choice of reining himself in or having his impulsive statements corrected when the facts didn’t line up.
The chatter among Spotify staff was that Martin’s comments had upset and disappointed his co-founder. Both wanted as little public scrutiny of the company’s finances as possible. Yet what Martin had claimed was simply too far-fetched.
The truth was that Spotify’s finance department was about to finalize its application to be listed on the New York Stock Exchange. That work had been underway since the middle of 2015, when the music-streaming giant welcomed a new and outspoken CFO.
Nice For What
“Why is Stockholm so shitty?”
The abrupt question put a stop to the regular small talk that had opened the meeting. Barry McCarthy had only been at his job for a few weeks, yet he already seemed disappointed with his new hometown. The recipient—a high-ranking Spotify staffer—struggled to make sense of the question. What did his new superior really mean?
Sure, Spotify expats would often complain about Stockholm being cold, gray, and full of people who would shove past each other in the subway without saying “excuse me.” But this assertion—that Stockholm was simply “shitty”—was harder to make sense of, especially in mid-summer, with the city in full bloom.
The sixty-year-old Barry McCarthy, who had helped list Netflix on the Nasdaq stock exchange in 2002, would soon become well known for his rugged jargon. The American simply found Spotify’s headquarters at Jarla House—a concrete slab in the middle of Stockholm—depressing. It was probably rough for Barry, who had left Palo Alto, where his home had a pool and a tennis court. In addition, the mission he had been brought in to carry out now appeared much harder than when he had signed his contract. Barry soon understood that Spotify was not ready to be listed—far from it.
The many problems varied. Spotify had grown quickly, and its organizational structure was, in places, haphazard. Its internal accounting system would have fit a medium-sized business operating in a handful of countries, but not a global market leader with business in nearly sixty countries. If a staffer in the finance department wanted to break down marketing costs for a single country for the year 2014, there would be no way of doing it.
Moreover, it was difficult for Spotify to accurately estimate its own costs. Over the coming years, the company would retroactively write up their royalty payments by more than $60 million due to accounting errors. Spotify had a hard time forecasting how the business would perform. During some quarters, subscriber growth came in well below its own estimates; during others, the number of subscribers surged past the growth team’s targets.
Barry McCarthy knew that the stock market hated unpredictability. The new CFO had to get Spotify’s reporting in shape quickly. He enjoyed the full confidence of Daniel Ek and showed his chief executive the proper loyalty and respect. Yet several coworkers would recall that Barry did not appear to take Martin Lorentzon seriously. According to one source, the original plan was for both Spotify founders to have adjoining offices in the splashy new headquarters being built on Regeringsgatan in central Stockholm, but once Barry had taken the reins as CFO, the Spotify board shelved the idea. By the time the building was completed in 2017, Martin’s office was no longer part of the floor plan.
Barry McCarthy ruled Spotify’s finance division with a firm hand. And with the stock market listing looming, a defining event for the young company, his influence extended further. Barry rarely shied away from bragging about his previous career achievements and was unsentimental in reorganizing the finance department, which partly meant letting staffers go.
Barry practiced what he liked to refer to as “radical transparency,” a corporate trait he had taken with him from Netflix—essentially, he would freely and frequently speak his mind. Once, at an all-hands meeting, Spotify’s employees got to witness it in practice.
“I don’t give a shit about diversity,” he said during a group discussion about representation at the company, according to one source.The CFO himself would later regret the comment and describe how he delivered it at a meeting with the North American sales team.
“Saying ‘I didn’t care’ about diversity as a whole was sloppy and inaccurate. I realized that it was a very poor choice of words as soon as I got off the stage,” Barry McCarthy said in an interview for this book. His point, he added, had been that diversity was subordinate to proficiency when building a team. Barry’s comments would later be cited in a lawsuit alleging that Spotify underpaid female employees and allowed a culture of “boys’ trips” involving drugs and strip club visits to thrive within the company’s North American sales division. As of the completion of this book, the lawsuit was unresolved.
Ahead of the IPO, Barry set three firm priorities for the company. The first was to increase Spotify’s margins, primarily through renegotiating better terms from the record labels. Spotify needed a significantly larger piece of the pie to eventually turn a profit. Not only would higher margins satisfy Wall Street, it was also in the major labels’ own interest, as it would drive up the value of their own shares in Spotify. Second, he had to get the finance department’s accounting on par with that of a publicly listed company. Finally, Barry wanted the conversion to paying subscribers to become more predictable. The same applied to the company’s financial forecasts, a task that he delegated to his predecessor, Peter Sterky.
The finance chief did not mince his words. In a pointed email to Spotify’s executive team, Barry wrote that Peter had twelve months to sort out the company’s forecasting, or else he would be gone. The email was written as if Peter weren’t in the loop, but in fact he remained on the executive team’s emailing list. A piece of radical transparency had just been delivered to the top of his inbox.
Another of Barry’s email blasts was aimed at Henrik Landgren, the head of Spotify’s analytics team. Shortly after he arrived, Barry wrote a company-wide email saying Henrik had done an “okay” job creating and running the analytics team; but it was now time for him to step aside in favor of Adam Bly, the founder of a data-oriented startup in New York that Spotify had just acquired. The announcement seemed to surprise Henrik, who had spent the morning in meetings and talking to colleagues about how to invest the money he was due to make from his stock options. He left the Spotify headquarters upset, to never return, as one person would recall.
Afterward, Daniel Ek followed up with an email praising Henrik for his efforts. Privately, Daniel then helped Henrik find the funds necessary to buy the shares allotted to him through his stock options, as one person would recall. The former analytics chief came away with a multimillion-dollar profit.
The unusual but widely praised corporate culture at Netflix would influence Spotify in several ways. At Netflix, numerous employees had access to its running tally of subscribers, information that was highly coveted by anyone trying to make stock trades. A wide group of employees was entrusted with knowing the subscriber count, and directors would sometimes learn of the company’s financial performance before Netflix told the market. They were all entrusted not to leak the information.
Many years after Barry McCarthy’s arrival at Spotify, Daniel Ek would claim that his company operated with similar levels of internal transparency, disclosing key financial information to many employees but, according to the Swede, never seeing it leak.
“You have to think hard about when to close the trading window for employees and board members,” Barry McCarthy would recall in an interview for this book.
The way he put it, Netflix and Spotify opted to offer employees insight into key metrics, while also shortening the amount of time during which they could trade shares freely in between quarterly reports.
Bosses at Netflix were also known for frequent performance reviews of their employees. Nobody, not even a top executive, was indispensable. Every staff member had to meet exacting internal standards, knowing they could be fired at any time. The only exception, some would claim, was the Netflix CEO, Reed Hastings—though he would retort that he answered to his board.
In the late 2010s, the board members had few reasons to complain. Hastings had presided over a remarkable rally in Netflix’s stock price that made the company not just Spotify’s blueprint on Wall Street, but one of the giants of Silicon Valley.
As Spotify’s new CFO, Barry McCarthy took several pages out of his old company’s playbook. He was eager to install loyal lieutenants who would follow his orders, and he rarely backed away from firing people. He was disliked by many, but he was also resolute. And Spotify needed a firm plan if it were to enter the public markets. With time, Daniel Ek would pick up some of his leadership traits.
Early on, Barry drew up a plan to raise a billion dollars in funding, an eye-catching sum that he would frequently brandish in conversations around the office. On the ninth floor at Jarla House, staffers would ask themselves if the company really needed more money. After all, it had only been a few months since the former CFO and his team raised around $500 million.
Years later, Barry would say that he wanted the money to be able to weather some tough label negotiations ahead of Spotify going public. Another source would remark that the billion dollars might have been intended for acquisitions, to fend off Apple’s advances within streaming. It also could have served as a safety net in case the economy went sour ahead of the IPO.
New Kid in Town
Spotify was now transitioning from a startup to a multinational corporation. Many of the early staffers who quickly advanced to senior positions had been forced to change roles. Some, like Jonathan Forster, the company’s first head of sales, had stayed with Spotify, taking positions further down in the hierarchy. Others, like the marketing whiz Sophia Bendz, had left in acrimony, but kept her peace with Daniel. Then there was a rare cohort of employees who kept climbing the ranks of the company. Among them was Alex Norström, who would become one of Daniel Ek’s most entrusted operatives.
During one of his few stage appearances, at the 2013 edition of the internet conference Slush in Helsinki, Alex explained how he viewed his mission.
“We’re trying to build something that will last for more than a century,” the head of growth said.
When he joined Spotify in 2011, he was met by a bunch of “long-term thinkers,” he said, showing a photo of industrial-era businessmen who founded the Swedish engineering giant Sandvik in the 19th century.
“We want to grow fast, and we would like to be around,” Alex said.
Alex valued his close ties to Daniel and was one of a few high-level managers who could make a joke at his CEO’s expense. Initially, he was not part of the Spotify executive team, yet he managed to bypass the traditional corporate structure and report directly to Daniel.
“People like Alex Norström and Gustav Söderström know how to navigate Daniel’s big picture ideas the best,” as one former employee would put it.
Within a year or two, Alex earned his stripes as the head of growth. Daniel felt it was time for a promotion and, in the spring of 2015, he tapped him for a new role as vice president of subscribers. Alex’s task was now to convert free users to paid subscribers.
Alex used a number of tricks straight out of the e-commerce playbook. One of his senior team members was Gustav Gyllenhammar, who had previously been head of Tradera, the Swedish subsidiary to eBay. Together, they identified customers who spent a lot of time inside the Spotify app without paying, and then inundated them with promotional offers. First, they would offer three months of premium listening for the price of one. If that didn’t work, their follow-up would be a premium account for one dollar per month for three months. Families and students got their own discount plans.
Lowering the price that millions of users were paying caused the number of “subs” to grow even faster. Toward the end of 2015, nearly a third of all Spotify users were subscribers, up from a quarter a year earlier. Lower prices for some meant the average revenue per user would decline, but that did not matter. Once the new subscribers got used to music without ad interruptions, and a fully functional mobile app, chances were they would keep paying the full price. Alex continued to move up the ranks. In September 2016, his title was upgraded to chief premium business officer, and he finally joined the executive team.
To some, it was glaringly obvious that only men with a certain rapport with Daniel Ek were offered the opportunity to advance at Spotify. Of the dozen-plus people who made up Spotify’s executive team and board, the HR boss Katarina Berg was the only woman. In conversations with employees, Daniel would acknowledge the problem, but also claim that the lopsided representation had been unintentional.
Piece of Me
In the fall of 2015, the Skype co-founder Niklas Zennström made a brief appearance in his old hometown of Stockholm. The Swedish Londoner, who had become a billionaire long ago, gathered a group of influential investors and entrepreneurs for a dinner party. One of its most prominent guests was Martin Lorentzon, who struck up a conversation with the head of a Swedish pension fund with over $30 billion at its disposal.
“I think it would be good for you to have more owners based in Sweden,” Mats Andersson, the head of the Fourth General Pension Fund, told Martin.
Typically, Swedish public pension funds would only invest in listed companies. But Mats Andersson seemed prepared to make an exception. He explained that Swedish owners would stand firm in a crisis and prove more reliable than private equity funds elsewhere.
The message struck a chord with Martin. Soon, Spotify had agreed to terms with several institutional investors in Sweden. Even the Wallenberg Foundation—an investment arm of the Wallenberg Swedish industrial family, whose name was synonymous with the corporate elite—began to show their interest. It seemed that Swedish money would make up a large part of Spotify’s next round of financing. But in January 2016, the plans they had drawn up leaked in the daily newspaper Svenska Dagbladet. The article clearly laid out that Spotify was looking for a convertible loan rather than equity funding, and that the plan was to float the company on the stock exchange.
The article infuriated Barry McCarthy. Rumors swirled that the leak had come from the Swedish bank Nordea, which was involved in brokering the deal. Fuming, the Spotify CFO insisted that he would not “deal with any Swedes ever again,” as several people would recall.
The row caused a stir among the reputable Swedish institutions. A representative for the Wallenberg sphere called one of Spotify’s Swedish shareholders to vent his frustration.
“You can’t treat us like this,” the representative said. He made it clear that the two heads of the Wallenberg family empire—the normally understated Marcus and his cousin Jacob—were not happy.
Fallin’ & Flyin’
In February 2016, stock prices were falling in China, a hugely important source of growth for the global economy. Fear was spreading among investors that the global economy was headed for a contraction, and loss-making companies such as Spotify were especially vulnerable. Barry McCarthy saw Netflix’s stock price drop over 20 percent within a few weeks. As a result of the market turbulence, one of Spotify’s shareholders, the US mutual fund Fidelity Investments, would soon write down Spotify’s valuation by 30 percent.
In a market plagued by uncertainty, the Spotify CFO saw even more reason to raise a large round of capital. The billion dollars he sought could get Spotify through a prolonged downturn. The idea was to borrow the money and let the lenders convert what they were owed into Spotify shares at a later date. The upside with a loan was that it would not let investors put a valuation on Spotify. That way, Barry could avoid raising funds at a lower valuation than before. In the tech world, so-called “down rounds” were to be avoided at all costs; it signaled a downward trajectory and irked earlier investors who would simultaneously see their ownership diluted and their shares drop in value.
Time was not on Barry’s side. If he didn’t act quickly to close the funding round, things might begin to look even worse. Representatives from TPG, an American fund which had invested in both Airbnb and Uber, had been in touch and proposed conditions. TPG wanted at least a 20 percent discount on Spotify shares when the company was listed, as well as interest on their loan.
“The terms were draconian,” as one person would put it.
Barry revised his boycott of Swedish investors. The pension funds AMF, Folksam, and the SEB Foundation all joined in on the transaction. The prospective lenders found that the deal guaranteed them at least a 30 percent return once Spotify was listed. And chances were their profits would rise even more.
“We didn’t understand how they could offer those conditions. It was too good to be true,” as one source on the lenders’ side would put it.
At the end of March 2016, the Wall Street Journal reported that Spotify was due to take a massive loan that would finance its path to the public markets. TechCrunch called it a “devilish deal,” noting that Spotify needed all the fuel it could get “to win the race against Apple.”
The terms of the loan were a major concession for Daniel Ek and Martin Lorentzon. Gone was the secrecy surrounding their intention to list Spotify, a piece of information they had kept under lock and key for years. The terms of the loan stated that a listing had to happen, and preferably within a two-year time span. If it didn’t, the lenders would quickly start enjoying larger returns.
To the markets, it looked as if Barry McCarthy had painted himself into a corner, but the CFO appeared to see two primary upsides with the new arrangement. First, it gave Spotify a better negotiating position with the record labels and publishers. Since Spotify was now well-funded, the labels would not be able to put a “gun to [their] head” by stalling the licensing talks, Barry would recall. Second, the loan made it possible for Spotify to acquire companies.
Besides, the “devilish deal” had another, hidden benefactor. One of Spotify’s lenders was Barry McCarthy himself, who put up $175,000 with the same favorable conditions attached. Within a few years, the Netflix veteran had made a tidy sum by lending his own company money.
Losing You
Daniel Ek and Martin Lorentzon wanted Sweden to remain the base for Spotify’s operations, but they felt that they lacked political support. In April 2016, they decided to voice their concerns.
“We need to act or we’ll be left in the dust,” they wrote in an open letter to Swedish politicians.
Former Moderate Party strategist Per Schlingmann, now a political consultant and personal friend of Martin’s, helped draft the letter.
“It is madness to us that Europe, with a bigger population than the US, does not have a single company on a par with Facebook, Google, Apple, Microsoft, Amazon, or the other major American corporations. We want to show that it is possible!”
The founders wanted computer programming to be made a compulsory subject at school. They also demanded more rental apartments be built in Stockholm and for the tax on employee stock options to be lowered in Sweden. Spotify’s personnel department was employing fewer people in Stockholm, preferring instead to create jobs in New York, where it was easy to arrange accommodation and advantageous stock options.
“If no changes are made, we will have to consider focusing our expansion on other countries than Sweden,” the founders wrote. A few weeks later, a group of around sixty protesters from Stockholm’s tech community gathered outside the Swedish Parliament demanding better conditions for fast-growing companies. “If Spotify leaves, Tidal wins,” read one of the signs.
Spotify’s founders would make good on their threat a year later, in February 2017, when the company signed an agreement with the City of New York to create one thousand new job opportunities. In return, Spotify would get $11 million in rent reductions.
The new US headquarters occupied floors twenty-seven and twenty-eight in 4 World Trade Center, just across from the Freedom Tower. Eventually, Spotify would extend the lease to occupy nearly six hundred thousand square feet of office space, becoming the building’s second-largest tenant.
Through the panoramic windows in Daniel Ek’s corner office, the Brooklyn Bridge looked like a miniature toy. It was a major outlay. Even before the extensions, rent for the new space totaled more than half a billion dollars over seventeen years.
The Spotify headquarters, however, remained in Stockholm. The new building on Regeringsgatan initially covered 215,000 square feet. Daniel Ek would have a corner office there, too.
Put a Ring on It
At the end of August 2016, Daniel and Sofia celebrated their wedding at Lake Como in northern Italy. It was an exclusive affair. Photographs of the many celebrity guests would soon make their way onto social media, and to news outlets across the world.
The ceremony took place outside, overlooking the lake. Daniel—dressed in a light beige linen suit, with a blue shirt and a little flower on his jacket lapel—stood at the head of the aisle next to the officiant, comedian Chris Rock.
Sofia, wearing a strapless wedding dress, walked down an aisle of pink rose petals to a piano version of “November Rain” by Guns N’ Roses. One of the first guests she passed was Mark Zuckerberg, the Facebook multibillionaire, sporting a dark suit jacket, a white shirt, and a baby-blue tie.
Friends and family filmed the ceremony on their mobile phones. Shakil Khan, in a white Panama hat tilted to the side, looked on from his place close to the aisle.
The couple’s two daughters—the three-year-old Elissa and one-and-a-half-year-old Colinne—had traveled with them from Sweden. Daniel’s stepdad, Hasse, and his younger brother, Felix, both posed for photographs that were later posted online.
Martin Lorentzon was one of the few guests from Daniel’s old group of friends in Stockholm, and only a handful of Sofia’s old crew were there to celebrate.
When the ceremony ended, the couple walked back over the rose petals hand in hand to applause from the guests. Daniel was now married, and Sofia Levander was Sofia Ek.
“Drinks with Chris Rock in Como,” Moha Bensofia, Sofia’s old friend, wrote on Instagram beneath a photo of himself and the world-famous comedian. “Just your average Saturday with the Eks.”
The joke rang true. Daniel Ek now belonged to a world of vaunted tech founders, famous musicians, and Hollywood stars.
“I don’t know how many other Swedish CEOs have managed to penetrate that bubble,” as one former colleague would put it.
Later that night, the pop star Bruno Mars performed for the scores of international wedding guests. Photographs from the event would soon end up in news outlets across the world. Hello magazine reported the news and posted pictures, as did Vanity Fair, trade journals such as Billboard, and business magazines like Forbes.
Mark Zuckerberg uploaded a photo that showed him and Daniel in conversation with Mark’s wife Priscilla in the early afternoon sun, with Lake Como in the background. Priscilla wore a red dress with a beige scarf that matched Daniel’s suit jacket.
“Many people know Daniel as one of the great European entrepreneurs—the founder of Spotify. I know him as a great friend and dedicated father,” Zuckerberg wrote in the photo caption on Facebook.
Daniel Ek was now an international star. And, within a few years, he would become a Wall Street CEO.