How Spotify Beat Apple to Charting the Future of Music

Spotify beat back the scourge of streaming album exclusives, and now it’s ready to go public. Here’s what it says about how fans value artists and platforms.

By for The Ringer

Jimmy Iovine was supposed to save the music industry. When he arrived at Apple in 2014 as part of the company’s $3 billion acquisition of Beats Music and Beats Electronics, he sought to inject humanity back into a world that had become dominated by recommendation algorithms and pirated zip files. Apple Music, the company’s much-hyped streaming service, would recenter music listening on people—artists, radio DJs, playlist curators—rather than technology. Iovine had already been championing the human touch on Beats’ nascent streaming platform. Apple would let him achieve the vision at scale. “Curation is a big thing to us, and no one is going to be able to catch us or do it better,” he told Wired in 2015.

The industry is, in fact, on the road to salvation, with revenues rapidly climbing thanks to streaming. But Iovine wasn’t the savior. Spotify made a different bet—that algorithmically powered playlists could drive streaming usage and that individual albums mattered less in a world of near-limitless options. They were right. Now the company has asserted itself as the dominant player in streaming and is preparing for a spring IPO, while Iovine is fending off rumors that he plans to leave Apple in August, when his stock vests. Spotify has outflanked America’s most valuable company while regularly suffering huge holes in its catalog from the world’s biggest artists. That says a lot about who really has the power in the midst of this industry resurgence. “When Spotify launched in 2011 in the states, they needed labels vastly more than the labels needed them,” says George Howard, an associate professor of music at Berklee College of Music. “The labels need Spotify now more than Spotify needs the labels.”

When Apple Music launched in the summer of 2015, Spotify appeared to be on its heels. The previous fall, Taylor Swift had removed her entire discography from the platform because of the low royalty rates on its free tier, putting a world-famous face on a common criticism of the streaming service. Digital downloads were still the primary source of recorded music revenue in the United States, which meant that Apple’s iTunes was still the biggest player in town. And when the music industry’s most important distributor moved into streaming, it brought unprecedented star power. Swift’s 1989 made its streaming debut on Apple Music, Drake appeared onstage at the developers conference unveiling the product (never forget), and Zane Lowe hopped the pond from the BBC to anchor a new 24-hour radio channel. The people powering Spotify, from CEO Daniel Ek on down, were comparatively anonymous.

Apple doubled down on the exclusives strategy after nabbing 1989. Over the course of the next year artists such as Drake, Chance the Rapper, DJ Khaled, and Future would release projects that debuted first on Apple Music and migrated to other streaming services later. At the same time, Jay-Z bought and rebranded Tidal as an artist-first streaming platform that had its own set of high-profile exclusives from Rihanna, Kanye West, Beyoncé, and Prince. Adele opted out of streaming her new albums, trying to rack up months of album sales first.

Combined, these factors left Spotify with glaring omissions in its catalog that annoyed a wide variety of music fans. If tentpole albums truly affected the viability of streaming services, Spotify would have lost subscribers. Instead, it appears it was the record labels who suffered. After about a year of nonstop exclusive releases, Universal Music Group chairman Lucian Grainge issued a moratorium on the practice in August 2016 because it was “bad for business,” according to Music Business Worldwide. The other labels followed, and the practice mostly died off (the only high-profile exclusive in 2017 was Jay-Z’s 4:44 on Tidal). “Consumers like one-stop shopping. They want to pick their music service and go there for everything,” says Serona Elton, director of the music business and entertainment industries program at the University of Miami. “They don’t really want the content to dictate which service they subscribe to.”

The exclusives gambit didn’t work for a few reasons. For one, these albums were only exclusive in the legal sense. They were all easily piratable with no more than a Twitter search or a visit to The Pirate Bay. Because the deals were mostly timed exclusives, fans also knew they could just wait a few weeks to stream the album, killing any real incentive to switch platforms. And while Tidal and Apple were locked in an exclusives arms race, Spotify was refocusing its entire user experience around curated playlists such as Discover Weekly and RapCaviar. That meant even if the album of the moment wasn’t on Spotify, something similar could be served up immediately.

“You want to be able to hear that really cool album that is exclusively available at a particular place, but you also just really need something that’s very good at providing you with hours of listening pleasure every day,” says James McQuivey, a tech and media analyst at Forrester. “Spotify has basically been able to overcome what’s generally really well understood about media streaming services—exclusive content matters. They’ve created an experience that does allow people to do what they want to do in the world of music, which is listen to hours of music every day and have that music be interesting and varied and true to their tastes.”

Today, Spotify has 70 million paying subscribers, compared to Apple’s 30 million (last reported in September 2017), and the proportional gap between the two services has remained pretty consistent as they’ve grown. The holes in its catalog have quietly been filled—Prince’s catalog returned to Spotify last February, and Taylor Swift’s latest album rolled out on Spotify and Apple Music simultaneously, weeks after its physical release. Spotify argued insistently against the wisdom of streaming exclusives, and now they’re gone. That tells us something about how power is shifting in the music industry.

Back in 2011, Netflix lost the licensing rights to about 1,000 movies when it failed to renew a deal with the premium cable network Starz. The announcement sent Netflix’s stock plummeting more than 9 percent as investors worried that the service would lack enough appealing content to keep driving subscriptions. The fear was unfounded. Netflix had enough shows and movies to keep attracting new users, even if it didn’t have any individual user’s dream lineup. Netflix at the time was becoming a destination people visited to browse for entertainment rather than a repository for specific content. It was turning into television instead of Blockbuster.

Spotify is in much the same position right now. With its regularly refreshing playlists, which rearrange artists’ music into a new kind of original content, Spotify has become a beloved musical destination rather than just a tool. It’s an iPod and a radio and a BuzzFeed “Which Drake Album Matches Your Personality?” quiz at the same time. Taylor Swift may have a legion of fans, but Discover Weekly does as well. Those always-updating playlists are now the must-attend musical events that Apple was trying to create around exclusive albums and radio shows.

Netflix used its power as an entertainment destination to nudge its users to watch its own original programming. Now instead of being indebted to Hollywood, the tech company seems to run it. Spotify isn’t there yet, and successfully making the Netflix pivot will be tougher because music isn’t as valuable to investors as video. Its attempts to diversify with original content have so far been nonstarters, and despite persistent rumors, the company hasn’t yet tried to establish its own record label.

The IPO will reveal whether Spotify has taken over streaming with a viable business model or a mirage (or whether investors are willing to live with the mirage for a while longer). The company remains unprofitable and in search of a product to monetize besides expensive licensed tracks. Last week it announced its newest gambit, news podcasts. Apple and the other tech giants may yet believe that, if this pivot falters as others have, they can simply wait for Spotify to bleed out. But it’s hard to imagine a platform that is a smash hit with users and now a vital lifeline for the flailing record labels bowing out.

Spotify’s fate is increasingly becoming intertwined with the fate of the entire music industry. It’s the savior it long promised to become, because it has to be. But tech platforms and the old-school media industries they promise to save—whether it’s Netflix and Hollywood or Facebook and news—eventually find their interests misaligned. The more users Spotify recruits and additive playlists it serves up, the more power it will have when the schism inevitably ruptures completely.