If you’ve seen any films recently, watched television or have even looked at a video online, the chances are you’ve heard music from Epidemic Sound. The Swedish startup provides cheap and simple-to-access library of soundtrack music, and already has some 250m hours of its music playing on Youtube each month.
But that is not all. After succeeding in soundtracking the internet it is now set on soundtracking the world including providing the background music to public spaces, restaurants, hotels, shopping malls and car parks with its own hardware and software.
We relished the fact that people had no idea who we were, and we would play down our expectations and also our results
The company already has seven offices across the globe, and, with a fresh investment of $20m it is now set on taking on Asia, where the growing platform Tik Tok is a key competitor.
“This move into Asia is a no brainer for us. It’s a win-win for both our content creators and musicians,” the chief executive and cofounder Oscar Höglund tells Sifted.
Daniel Ek has so far been the face of Swedish music tech. During the last decade, Spotify has been the backbone of the tech segment. Sure, there have been others, but in comparison, they have been a banana fly to a hawk in size, scalability and hype.
In contrast to Ek, Höglund has grown his business silently.
No one had really heard much of Epidemic Sound until 2017 when news broke that the big investment firm EQT had invested €40m in the company, giving it a valuation of over €100m.
All of a sudden the veil was lifted on a company which now has nearly 400 employees, 10,000 new customers every week and 250m hours of played Youtube background music each month.
“For a very long time, we've been one of the best-kept secrets in Sweden, and we actively pursued that position. We relished the fact that people had no idea who we were, and we would play down our expectations and also our results,” Höglund tells Sifted.
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Whilst Spotify needs to pay most of its revenues in royalties and to music labels, the music tech startup Epidemic Sound has chosen a more profitable model.
It all started with television production back in 2008 when Höglund and his cofounder, working in the industry, found two problems they wanted to solve; one, how to help musicians make a living from their craft; and two, how to make the job of content creators in TV production much easier.
The royalty model is tricky, and it is no surprise that lawyers make up such a big part of Spotify’s team. So instead of paying artists each time music was used, Epidemic Sound decided to buy the rights to the music from the artist.
The company took the risk of the music never being used by the production companies but if it was, it got all the royalties. In turn, it could offer the television teams better terms to make it easier to use music in the production.
Although Höglund and his four cofounders had the idea clear in their heads of how it could be done, it took about three years to break into the market.
“It took longer than we anticipated because typically it would take us 1,000 days from our first meeting with a TV broadcaster to them signing a deal. The production companies needed time to change the procedures,” Höglund says.
Suddenly, we found ourselves in a situation where all the Swedish TV channels were playing our music at the same time
In comparison to other startups, the cofounders of Epidemic had a couple of successful careers and exits behind them. Because of that, they managed to keep going without taking out a penny in salary and constantly adding more money to the project within the first three years.
“It was arguably lucky, but we’d put in 10 to 15 good years previously, and built a couple of companies that did well. But we took everything we had, big bets, bold moves, and we believe in it. We also thought that there was a huge opportunity, right? Because soundtracking the internet, that's no small feat.”
“Suddenly, we found ourselves in a situation where all the Swedish TV channels were playing our music at the same time. I sent an email to my cofounders, and I said, okay, so I think we have product market fit, we should probably scale now.”
Epidemic expanded to the rest of the Nordics, the UK and Holland before going global, with a particular focus on the US market. But even during the expansion phase Epidemic was not on many people’s radar.
“Fake music” label
The under the radar strategy worked well until the headlines of Spotify using fake artists to fill its lists emerged in 2017. Since it was cheaper for Spotify to have people listening to music that was not produced by the big music labels, magazines such as Music Business Worldwide hit down hard and accused the platform of promoting artists that did not exist in real life, despite having millions of listenings on Spotify.
But the artists were not fake as such, only pseudonyms for artists producing music for Epidemic Sound. But the reports forced the company to step out of the shadows to prove that it is was not peddling fakes.
Our tracks would be called ‘epic car crash 1 to 14’, or ‘great music for editing a laundry commercial’
The reason the music on Spotify from Epidemic was labelled “fake” had also to do with the naming of the tracks. During 2017 the company tweaked its business model so that it was not just selling to businesses but also to consumers.
The music that had previously only been available to listen to as background sound in Youtube videos, computer games or whilst watching a television series, was now spread to platforms such as Deezer, Apple and Spotify. In turn, this opened up for sharing music on social media as well.
Given that Epidemic would make much more out of the music after adding the music platforms, it decided to split the royalties, from the business to consumer sector, 50/50 with the artists. And to keep those artists that wanted to be anonymous, pseudonyms were introduced.
We started seeing billions of views and so there were tons of money coming our way
However, in the beginning, when adding music to the platforms the title for each song would be the same as was used in the search register at Epidemic.
“What happened was that we started seeing billions of views and so there were tons of money coming our way.”
“But the music was made-for-purpose in the business-to-business world. So our tracks would be called ‘epic car crash 1 to 14’, or ‘great music for editing a laundry commercial’, very much oriented to helping the user. But that was totally no-go in a commercial world,” Höglund says.
“This was what sparked the fake artist debate.”
Shifting the focus
Following the debate, Epidemic changed the titles of all new songs so that they would work in both the consumer-facing world and the soundtracking business. And with the changes to the business model also the music has changed dramatically in the last few years. If Epidemic was mainly focusing on instrumental music in the beginning, it is now investing substantially more money and time in vocal tracks, according to Höglund.
“In the early days, the majority of the need hinged around music to compliment some other purposes, hence instrumental music was front and centre,” Höglund says.
“As we started to grow, and we started to soundtrack public spaces, restaurants, hotels, shopping malls and car parks it became more and more obvious that we could do. And also, there's a pent up demand for vocals so we started creating tracks where they're centred around that.”
So we now have a megaphone, if you will, where we can launch artists globally at scale
Going vocal and adding music to the streaming platforms have had a positive result for Epidemic Sound. Sales have more than doubled since 2017 when the revenue hit $14m.
And having almost 2m influencers using Epidemic Sound to soundtrack their stories, the company has found itself a free distribution channel.
“So we now have a megaphone, if you will, where we can launch artists globally at scale. And so, we're soundtracking the internet,” Höglund says.
The big push – Soundry
Having already partnered with hardware companies, Epidemic has over the last year and a half also developed its own hardware and software in a service named Soundry. Now, companies running shops, restaurants or other public places can get a royalty-free music service through Epidemic Sound.
“So in our world, it's still early days, but that's one of our big pushes to soundtracking public spaces and that business is now booming for us,” Höglund says.
That business is now booming for us
Epidemic Sounds’ 50/50 royalty split sounds pretty nice, compared to the deal artists often get from conventional record labels. Höglund doesn’t want to comment on record labels or other music distributors but he believes in the power of Epidemic’s reach and business model.
“We're the only completely omnipresent music company that can soundtrack everything without being tied into constraints through allegiances,” Höglund says. “This is definitely the future music company in the world.”