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Spotify: Understanding Listener Choice

Roger Faxon
Former CEO at EMI Group & Board Member at Pandora Media

Learning outcomes

  • Spotify’s role in the value chain and potential to capture more the record labels’ margin from consumer data
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Executive Bio

Roger Faxon

Former CEO at EMI Group & Board Member at Pandora Media

Roger has over 30 years experience in the music and publishing industry. In 1994, he joined EMI, one of the four largest record labels globally, and spent 5 years as CEO of EMI from 2007-12 just as the industry was rapidly shifting digitally. Roger has led A&R investments, negotiated deals with the largest streaming platforms, and is on the board of Pandora Media and ITV. Previously to working in the music industry, he was CEO of Sotheby’s Europe and EVP at Lucasfilm.Read more

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Interview Transcript

That’s interesting because Spotify, obviously, own the customers now. They own the users. If you’re saying that the essence of the record labels was the A&R people thinking that they could choose music or understand the taste of the consumer, now the discover funnel actually lies with Spotify. How do you look at that shift in discovery and consumer data?

Spotify doesn’t make the music. They take the music that is made and make it available to a large number of consumers. There’s all sorts of statistical work that has been done on what does it look like, in terms of listens or sales? They do cluster at the top. What tends to happen and is happening, even today, is that music, basically, becomes stagnant. Everybody produces the music that was successful yesterday. It takes something to break away, to change the nature of what’s out there in the marketplace. I’m a true believer that you can keep doing that. You can keep moving with your consumer. Not that the consumer knows what they want, in a particular way, but there are ways of testing them and understanding whether you’ve got the right mix. That means you need to know who you’re trying to go after. Who controls that? Who knows that? Spotify knows that. Apple knows that.

Now, you’re captured again. I think that’s where the industry is. I think they are changing a bit; that doesn’t mean that they are not paying attention. A lot of A&R is now about looking at the charts of Apple and Spotify and looking at what’s moving and we’ll go get those people. We’ll convert them from indies to majors.

How do you look at the position of the labels, in the value chain, given that we’ve seen such a huge shift in usage and, arguably, the digital players owning the consumer?

I don’t think it’s necessarily true that it is inevitable that the digital players, the subscription players and others, have a unique way of understanding. You can deal with these things, even though they do. But they have a strength. One of the things that Spotify is talking about, as part of their economics, going forward, is using that knowledge and charging the record companies.

The marketplace?

Yes.

How attractive do you see that, for the labels?

I think it’s just one more step to saying that the major record companies are going to lose market share. If Spotify can help somebody understand how to position and where to position their music, and be able to look at that in real time, that’s really what the role of a major record company is. Their economic advantage is that they have huge catalogues. Those catalogues, based upon the economics that they represent, have very, very high margins. They’re able to buy successful artists. Therefore, their market share can be retained, but their economics is dependent upon history, not the future.

What I think will happen and is happening, is that so-called independents will continue to grow. In this world, it’s interesting how we describe independents. Independents are ones who do their own A&R and they have their own economics. But most of them are captives of the major record companies, because they provide the capital to do what I’ve just said. I’m talking about non-captives. Just like what’s happening in the music publishing business, given how robust the music business is, at the moment, the investments will start to calm and there will be alternatives, with sufficient enough capital, to drive companies into being competitive.

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