Three years ago Danny Ocean, a cheerful Venezuelan with floppy hair and a silky-smooth voice, moved to Miami to start a new life. He scored a job in a pizza shop, but found himself missing the girlfriend he had left back home. As a Valentine’s gift, he wrote a song in his bedroom for her, wistfully crooning against upbeat synthesisers.
He uploaded the song, called “Me Rehúso”, to YouTube and Spotify. It began creeping up Spotify’s viral charts in Colombia, Chile and Peru, which caught the attention of Spotify’s curators — the employees who monitor minute-by-minute listening data. They unanimously agreed to add it to their playlists, such as “Verano Forever”, where Spotify’s users lapped it up. Week by week, Spotify added it to more playlists, each with bigger followings, until two months later the song made it to the holy grail — “¡Viva Latino!” — which has the clout to catapult unknown acts into stardom.
In less than a year and with only one released song, Mr Ocean attracted a bidding war among the world’s largest music labels, before he signed a plum recording contract with Warner Music. The lanky 26-year-old skateboarder was soon labelled the new king of reggaeton, the popular genre that combines Latin music and hip-hop.
Internet fairy tales like this have circulated for some time. Justin Bieber was discovered on YouTube a full decade ago. But in a business now dominated by online streaming, Latin America is having a moment. In 2017, music revenue increased in the region faster than in any other, as a young, internet-savvy population streamed music in the billions, prompting Rolling Stone to declare the year Latin’s “pop takeover”.
Apart from the Danny Oceans of the world, few could be happier about the synergy between music streaming and Latin America than Spotify — whose stock price, and arguably future, depend on repeating the same trick in new markets.
Spotify needs to keep adding subscribers to make Wall Street happy as it battles Apple, one of the richest companies in the world, to dominate how the world listens to music. There is a finite amount of affluent 20-somethings in western cities to pay Spotify $10 a month for its services. However, after growing at a torrid clip in Europe and the US, investors are betting that Spotify can sign up hundreds of millions of people in what the Swedish company bluntly calls the “Rest of the World”.
So far Latin America is the only emerging market where the Spotify model has worked meaningfully — a phenomenon which caught senior executives by surprise when it entered Mexico six years ago. Spotify became the dominant paid streaming service in Latin America with minimal effort; to this day a few dozen employees working out of a Miami WeWork office run the operation for the whole continent.
“No one ever expected it, and we didn’t even have the resources for it. Chile is now one of our fastest-growing markets, and we’ve never even sent an employee there,” says Will Page, Spotify’s director of economics, who expects Mexico and Brazil to overtake the UK and Germany in subscriptions.
Emboldened by the results in Latin America, founder Daniel Ek is convinced that he can replicate this across the globe. In pitching Spotify to investors before going public in April, Mr Ek made grand proclamations about the billions of smartphone owners across the world who do not yet use his music app. “We’re working on launching in some of the biggest markets in the world, places like India, Russia and Africa,” he said.
Spotify has already made strides: in November it debuted in the Middle East, while last year it also entered South Africa, Israel, Vietnam and Romania. Scrolling through the Spotify app, users now see genres titled “Arab” and “Afro” next to “Party” and “Sleep”.
Wall Street has bought into the narrative, with a successful stock market debut and optimistic forecasts for its future. Across the world excluding China, an estimated 6 per cent of people with payment-enabled smartphones pay for Spotify, and Morgan Stanley predicts this percentage will double in the next five years to 220m paid subscribers. By 2023, the bank expects Spotify will have 53m paid subscribers in Asia, the Middle East and Africa, compared with just 11m in 2018.
But that initial enthusiasm has cooled and doubts are creeping in. After soaring in the first three months as a public company, Spotify’s shares have been roiled by a broader rout in technology stocks, dipping below its opening price on the NYSE. “Investors have gotten increasingly nervous,” Morgan Stanley analysts said in October, citing a “lack of new market launches (India & Russia)”.
In the US, the biggest music market, Apple recently ousted Spotify from its throne to become the most popular paid music streaming service. And Spotify has hit a large speed bump in its quest for global domination: India. The country has become a bargaining chip in the jockeying between the tech company and the music industry. After months of talks, the large labels that control the music business have still not given Spotify the green light to license their songs in the country, according to people familiar with the negotiations.
“Now they’re a publicly traded company and they really need to grow,” says a senior executive at a major label. “It’s our one big piece of leverage.”
When asked what they did to conquer Latin America, Spotify executives shrug their shoulders. “We didn’t really do very much at all,” says Mr Page.
When Spotify entered Mexico six years ago, it was still a bootstrapping start-up with a “barely functional HR department”, he says. “We had one woman, without an office, flying around the continent, literally. We were flying by the seat of our pants.”
An economist by day and DJ by night, Mr Page gives his interpretation of what happened. First, licensing was easy because Latin America was still in the throes of piracy, which meant labels were happy to do deals. In the US, the iTunes store had helped thwart piracy, but in Mexico a mafia-run piracy business was still thriving. Music executives in places such as Canada and Japan were hesitant to trust Spotify, resulting in years of painstaking negotiations to launch in those countries.
However, in Mexico “we literally took the money”, says one Mexican executive who was involved in licensing talks at the time. “At that point we were very happy getting $50,000 in a contract,” the executive says. “So all of a sudden a company comes offering us $2m, and we had no experience [with Spotify] at the time, and we took the money.” Read More>>>