Global-expanding Spotify threatens to quit Sweden for NY

The world’s largest streaming service Spotify has threatened to leave Sweden and set up base in New York, unless its home country starts addressing issues that stops it from competing on a global level.

With its subscriber total rising to 30 million last month and 75 million users from 58 countries, it is on a growth plan to get away from new rivals starting to snap at its heels. Last month it raised US$1 billion (A$1.3 billion) in debt financing.

It plans to expand its workforce by “thousands” in the next few years and has put strategies in place to draw more users and subscribers. But attracting high tech professionals to its 850-strong team in Stockholm (made up of executives from 48 countries) is a problem. Spotify incidentally also employs 1,354 in nearly 30 offices around the world.

In an open letter to Swedish politicians posted on the website Medium, Spotify founders Daniel Ek and Martin Lorentzon complained that it is difficult to draw the best and the brightest to its headquarters because of Sweden’s lack of rental and purchase housing, its schools dropping in global ranking, and high taxes on staff stock options.

House rentals and sales are strictly held by housing commissions and are strained by unprecedented immigration. The waiting time for a rental apartment is ten times and house prices have tripled in the last twenty years. Ek and Lorentzon argue that cities like New York, London and Singapore are also expensive but do have more places for its executives to rent.

Swedish education lags behind in teaching IT and programming to younger children, especially to girls.

Ek and Lorentzon further contend that high taxes on staff stock options sees an executive brain-drain to the US and Germany which have lower taxes on such options.

“We love Sweden and believe that this is basically the best environment for us,” they wrote. “But at the same time, we cannot magically remove the political obstacles. Thousands of Spotify jobs could go to the U.S. instead of Sweden.

“Success requires that you constantly change and act immediately. Those who don’t are overtaken. It’s the same in politics. This requires urgent action, otherwise Stockholm and Sweden will lose in global competition.”

The complaints by Spotify, which in June 2015 was valued at US$8.5 billion (A$11 billion), are echoed by many other European start-ups –that their governments don’t help them expand to take on global rivals. Three of the five biggest Swedish technology successes — gaming companies Mojang and King, and telephony group Skype – are now in US hands.

In Spotify’s case, it is feeling the heat from fast rising cashed-up rivals as Apple Music. In its last financial report covering 2014 it made $1.3 billion ($1.67 billion) revenue, up 45% from 2013. But with high overheads like 70% going to recording and publishing licensing, its net losses were $197 million ($255.7 million).

Plans are to enter 20 new markets in Europe and South and Central America. It says it has finally struck a deal with Led Zeppelin to bring their catalogue onto its streaming service. It now allows free streaming to mobile devices.

It’s also expanding to provide research data to the music industry, artists and to advertisers.

Its study of millennials taught it that there is a strong brand loyalty and high-tide engagement (they listen to music on the service at least 2 ½ hours a day) and makes it easier for Spotify to target global advertisers.

Its studies also found that Spotify users and subscribers are five times more likely to spend money on things like concerts and merchandise. It’s been successful on sending pre-sale ticket emails to superfans: open rates are 35% and the click-through rate averages at 18%, its executives reveal.

To expand its data acquiring, Spotify is also starting to buy up other companies. Earlier this year, it bought Soundwave which look at what songs people streamed on their phones and where they were at the time, and Cord Project which is developing ways to make voice chat and messaging better.

Spotify is also one of the major brands that signed on as a smartphone app integrated to the plot of the Sony Pictures Animation’s upcoming still-untitled emoji movie. The action in the movie takes inside a smartphone.

Spotify has not divulged its numbers in Australia. But a study of global statements put it at 25% subscribers and 75% users, with the latter at 1.6 million.