The Journal on Sports and Entertainment Law recently sat down with attorney Horacio Gutierrez, General Counsel of Spotify, to discuss current issues in music streaming law. As Spotify’s top lawyer, Mr. Gutierrez is responsible for overseeing Spotify’s legal, compliance and regulatory affairs around the world, and serves as corporate secretary to its board of directors. Mr. Gutierrez received his LLM from Harvard Law School in 1991 as a Fulbright Scholar, a LL.B as from Universidad Católica Andres Bello in Caracas, Venezuela, and a JD from the University of Miami in 1998.
The interview was conducted by Loren Shokes (Class of 2017), the Executive Editor of Online Content and the Online Interview Editor for the Harvard Journal of Sports and Entertainment Law. The interview is part of JSEL’s interview series with lawyers in the entertainment and sports field that will be featured on JSEL’s website. It has been edited for clarity.
**Please note that, throughout this interview, Mr. Gutierrez was speaking in his capacity as an individual and a scholar, and not as a representative of Spotify**
Loren Shokes, Journal on Sports & Entertainment Law (JSEL): With over 100 million active users as of June 2016, Spotify is undoubtedly the titan of music streaming. Nonetheless, there is increasing competition from other streaming services such as Apple Music, Tidal, Pandora, and Amazon Music Unlimited. With that in mind, how has Spotify been working to ensure that it not only retains, but also expands, its customer base?
Horacio Gutierrez (HG): The only way a company like Spotify can get, and stay, ahead in the technology industry is through a combination of two key things: innovation—in technology, business model, as well as in other aspects the service that we provide our customers; and customers delight —we have to not only satisfy customers, but even surprise and delight them, by offering them experiences they don’t get in other services. The combination of those two things is the only way that we can be sure to remain a leading force for years to come.
JSEL: There have been increasing demands from artists, music executives, and record labels for Congress to enact mandatory minimums for streaming services as many view streaming service’s payment structures as unsustainable for musicians and labels alike. Spotify disclosed that it pays an average of $0.006 to $.0084 cents per song streamed and other streaming services pay both lower and higher rates for the same content. Do you think that mandatory minimums are necessary or should streaming companies be able to continue to set their own rates and payment structures?
HG: It is not accurate to say that streaming companies set their own rates and structures. Rates are the result of negotiations with rights holders; record labels, publishers and the other players in the music industry. One of the things that inspired the creation of Spotify and is part of the DNA of the company from the day it launched (and remember the service was launched for the first time around 8 years ago) was addressing one of the biggest questions that everyone in the music industry had at the time—how would one tackle and combat online piracy in music? Spotify was determined from the very beginning to provide a fully licensed, legal alternative for online music consumption that people would prefer over piracy. If you look at what has happened since the launch of the Spotify service, we have been incredibly successful on that score. Figures coming out the music industry show that after 15 years of revenue losses in music industry, the music industry is once again growing thanks to music streaming.
Most people do not realize that over 70% of all the revenue Spotify generates goes back to the creative community that owns the right to the music content that we distribute through our service; artists, songwriters, record labels, publishers. That’s as it should be. Our success translates into the success of the music industry and vice-versa.
The key question going forward is if the growth is sustainable, and I believe it is. We have opportunities to continue to grow geographically, in terms of further penetration of the markets in which we already operate in, in terms of our ability to convert free users to our premium service, and in our ability to monetize other aspects of our service, including our free tier. If we can succeed doing that, we will all benefit. Everyone in the music industry benefits and the number of people who will be able to make a living, whether they are performers, songwriters, other artists, or people in the services associated with the music industry. The number of people who will be able to live off their craft and their creations will continue to increase. We see that as part of the mission. But in order to do that, we must have a profitable business. And therefore, while everyone should benefit, we also need to be able to fund the investments we are making on innovation from a technology perspective, and to fund our infrastructure and expansion into new markets. Striking a balance among those things is not a trivial thing; it is hard to do but we think, if anything, Spotify is an example that in fact that can be done in a fair and balanced way.
JSEL: There is more and more discussion that Spotify is planning to announce its IPO sometime in either late 2016 or early 2017. Although Spotify’s revenues have grown each year since its launch in 2006 and the company has a current valuation of approximately $8 billion, Spotify has reported a loss every year since 2009. With that in mind, how can Spotify convince investors that its business model is not only sustainable but is also a worthwhile and profitable investment?
HG: I cannot comment on IPO plans or provide forward-looking financial information. We take the long view when it comes to these things. We’re making the investments now that are necessary for us to continue to grow as a business and remain a leader in the industry, and we will continue to do so in the future.
JSEL: In response to criticisms that Spotify underpays artists, Spotify claims that it has helped reduce piracy by migrating listeners away from piracy websites and less monetized platforms, to its free, ad-supported tier, thereby generating far greater royalties for labels and artists alike. Furthermore, once customers begin using Spotify’s free tier, the company tries to drive users to its premium subscription tier. Do you think that the criticisms against Spotify’s payout structure are unwarranted and that the counterargument that it has helped curb the piracy plague is sufficient?
HG: I think one just has to look at data to recognize that the freemium model for online music consumption works. Our free tier is a key to attracting users away from online piracy, and Spotify’s success is proof that the model works. We have data around the world that shows that it works, that in fact we are making inroads against piracy because we offer an ability for those users to have a better experience with higher quality content, variety richer catalogue, and a number of other user-minded features that make the experience much better for the user. As we continue to succeed in monetizing the free tier, and continue to do a good job of converting free users to paid subscribers in the way we have done so far, we have a proven formula and a formula that, once again, will benefit everyone in the industry.
JSEL: Prior to joining Spotify, you worked at Microsoft for 17 years and your last role at the technology conglomerate was General Counsel. Can you compare your duties and responsibilities as General Counsel for Microsoft to those in your role as General Counsel of the world’s largest music streaming service?
HG: There are some aspects of the day-to-day role that are very similar. Fundamentally, setting aside the difference in size and breadth of the respective businesses, Microsoft and Spotify are both technology companies. There’s a tremendous amount of software innovation that takes place in both places; both companies care deeply about understanding their users and using the insights generated from usage patters in order to have a closer understanding of its users and provide more value to them in the form of services. And that raises similar kinds of legal and regulatory questions that one has to deal with on a daily basis. There are issues about the protection of the privacy of the personal data of users; there are issues related to the regulatory environment from net neutrality to competition law to other telecommunication regulatory issues; clearly there are intellectual property and IP licensing related questions on both sides, even though in the case of Spotify it is more heavily focused on music and other content-related copyright. Spotify’s business, like Microsoft’s, is an intellectual property-based business in many significant ways. Being able to enter into licensing agreements with the key stakeholders is important for both companies. So in some respects it is very similar. In others, it is very different. Spotify is a company that has fewer than 3,000 employees. Microsoft has over 100,000 employees. The legal department at Microsoft is multiple times larger than the legal department at Spotify. That in and of itself is a reflection of stage of development of Spotify and the nature of its business as compared to a company that really is a conglomerate of several multi-billion dollar businesses like Microsoft is. So I am certainly enjoying the learning curve that I’m going through at Spotify, especially when it comes to the music copyright and music licensing space, but in other respects it’s just a continuation of a learning curve that had started at Microsoft.
JSEL: I read that you graduated from Universidad Católica Andrés Bello law school in Caracas, Venezuela in 1986, where you also obtained a Specialization in Corporate and Commercial Law, then received an LLM from Harvard Law School in 1991 as a Fulbright Scholar. And yet, despite having two law degrees, you pursued a J.D. from the University of Miami in 1998. When recollecting on your experience at UM, you explained that, “it wasn’t until I obtained my J.D. at UM that my career really took off.” Many of our readers are graduates of foreign law schools and either have, or are in the process of obtaining, an LLM from Harvard Law School and hope to practice law in the U.S. Can you explain why you felt that having a J.D. from an American law school helped your career.
HG: There was one very concrete reason why I needed to have it and then sort of a general reason why I think became helpful later on. It is unusual for someone who has basically three law degrees to decide to go to law school at night to get a fourth one the way I did it after working full time. At the time I lived in Florida, and Florida, like some other states in the US, required that in order to sit for the bar exam, one actually needs a JD from an ABA accredited university. I was already admitted in New York (I had taken the bar exam in New York after my LLM at Harvard and had passed and was a member of the New York bar) but was not, and could not, have become a member of the Florida bar had I not completed the Juris Doctorate program. So that was the more pressing, practical reason why I did it.
In hindsight, and even though it was a tremendous sacrifice from a personal and from a family perspective (I always tell people the story of how my second daughter was born the night of the property law exam and joke that I almost named her “Rule Against Perpetuities”) that in the end having gone through the JD program in addition to the LLM did two things for me. First, it gave me a deeper understanding of the common law system, in a way that the LLM program really did not provide. An LLM will give you depth in a focused field of law or will give you breadth in a variety of fields of law, depending on which approach you choose to take. I had chosen to focus on corporate law, corporate finance, and international finance in my LLM, but there were a number of other important subjects of law, in some ways the “building blocks” of the US legal system, which I did not have an opportunity to focus on during my one year LLM. So the JD did that for me—it gave me the ability to more deeply understand the US legal system and, in the process, do a comparative law exercise based on my previous experience in the civil law system. The other thing that it did was help remove any doubts in people’s minds, including potential employers, as to whether I was in fact fully qualified to practice law in the US. And regardless of the fact that I had been admitted to practice in New York and could have waived into the bars other jurisdictions in the United States, I think sometimes employers erroneously assume that a foreign law degree does not prepare you well enough to practice law in the United States.
JSEL: Through your various positions throughout your career as an attorney you have been exposed to both civil and common law jurisdictions. I read that when you began working for Microsoft you were as a commercial attorney for the Latin America region in Fort Lauderdale, you then transferred to Microsoft’s corporate headquarters in Redmond, Washington, then you were stationed in Paris as Associate General Counsel for Europe Middle East and Africa, and ultimately back to the company’s headquarters in Washington state where you worked as the Deputy General Counsel and finally as General Counsel. Moreover, while you were still enrolled at the University of Miami, you worked full time at the law firm Morgan Lewis LLP as an international consultant. Within the last 10 years, Spotify has expanded to over 50 countries on 5 continents, some of which are civil law countries and others are common law jurisdictions. How has your prior experience helped you in your position as General Counsel to manage the various types of legal issues that arise in the jurisdictions Spotify is based?
HG: Well just as the economy is now globalized, the practice of law has similar become global. And while no single person will be admitted to practice in every jurisdiction around the world, the reality is that in-house counsel must be prepared to navigate very disparate legal regimes in different parts of the world, including the very different cultural traditions and philosophical foundations of those different legal systems. So the experience I had, both prior to joining Microsoft as well as during my Microsoft tenure, was very international in nature. As we’ve discussed, I was trained and practiced as a lawyer in a civil law jurisdiction then I was trained and practiced as a lawyer in the United States. I led Microsoft’s legal department in Europe, the Middle East, and Africa region, and when I returned to Microsoft’s headquarters in Washington State my practice continued to have an international component. So I believe that the opportunity to have worked in those jurisdictions, to have visited there frequently, to have negotiated transactions and interacted with practitioners, regulators and policy makers around the world, has been key to my ability to take on the role that I am now performing at Spotify. As you said, Spotify is still in the process of expanding internationally, it is itself a very globally minded company, and if I had not had the kind of global breadth of the practice that I had before coming here, I might never had the opportunity to join Spotify as General Counsel.
JSEL: I read that you said that moving to Spotify “was just the right opportunity at the right time.” What enticed you to work for Spotify?
HG: You don’t leave a company like Microsoft, one that was so important to my professional and personal development, and you don’t leave people that you respect and admire as much as I admired my colleagues at Microsoft, unless you are passionate about the next opportunity you are pursuing. I had started at Microsoft basically an entry-level corporate attorney and over seventeen years I climbed all the way to the General Counsel position. It was a tough decision to make. The thing that really attracted me to Spotify is the fact that the nature of the business was such that it fit very well to the skillsets I had developed, in the areas of intellectual property and intellectual property licensing, which is such an important part of the business of Spotify from a content licensing perspective, but also all these other international legal issues including global regulatory issues. But it was also the excitement about the experience of joining a company that was still in its early stages of development. It is as if I had joined Microsoft in 1982, a couple years before it became a public company. The opportunity to be a contributor to the development and execution of the strategy as the company continues to grow and expand just proved irresistible to me—the opportunity to be part of a project like that and start not quite from the beginning but certainly at a time in which the company still had quite a bit of room to grow and to expand and to become more successful. However long I have left in my professional legal career, this was the way I wanted to spend that time.
JSEL: Can you tell me more about your career path?
HG: Life has a way of taking you to places and most of the time the path that you take is not a straight line between points A and B. You take a number of turns. I’ve always guided my career decisions in part by a sense of where my competence lies but also where my heart wants to take me. I need to feel excited about the opportunity ahead of me, I need to feel proud of a project that I am joining and that is the reason why I left private practice to join Microsoft in 1998, and the reason why over the 17+ years there I took a variety of roles that really stretched my skill set and challenged me to go through steep learning curves. And that is why when the opportunity to join Spotify presented itself I decided to take it. It was not a predictable outcome for a kid born in a province of Venezuela and who did not speak English. And I think if you try to lay plans as to where you are going to be 10, 15, 20 years down the road, it is very unlikely that you’re going to end at the place where you originally thought you were going to end up; you have to adjust your plans as you grow, mature, and as your interests and curiosity take you different places.
JSEL: What advice would you give law students interested in pursuing careers in technology and entertainment law and going in-house?
HG: The obvious part of that is there are a number of courses in the curriculum in law school that one can take. I don’t think I can overemphasize the importance of taking intellectual property classes as well as international law classes. If someone wants to go in house, particularly in a technology company, whether they are dealing with questions related to competition law or corporate issues, those intellectual property issues tend to be part and parcel of practice within the technology industry. Having a global focus is really critical for companies nowadays who have a global marketplace. Especially today, there’s a tremendous amount of focus on issues related to privacy, and other legal and regulatory aspects of the big data and machine learning and analytics, and all of the data sciences as they explode. Those are going to be the issues that technology companies will be dealing with in the future.