Spotify’s GC on Moving from Microsoft to the Music Streaming Service

When Horacio Gutierrez left Microsoft Corporation last year to lead the law department at Spotify, he placed a bet on the music streaming company’s future.

The 52-year-old lawyer had spent 18 years working up the ranks of the technology giant, earning himself a promotion to General Counsel and Corporate Vice President just six months before a headhunter convinced him to jump ship.

“I felt almost as though, if I had the opportunity to join Microsoft in 1982, before the company became public, and if I had become part of the seminal group of people to take the company public, and continue to grow it and expand it around the world... that is something that, around [Microsoft], the opportunity had closed,” said Gutierrez in a sit down interview with Big Law Business on Tuesday. “Even though it had grown in significant ways, it was no longer this feeling of being part of the project to help launch a new company.”

His thoughts about Microsoft — and what led him to join Spotify — could be taken as a foreshadowing of sorts. Bloomberg News reported last year that Spotify aims for an initial public offering in the second half of 2017 and could be valued at more than $8 billion.

When asked if he could speak to public reports of a potential IPO, Gutierrez’s face reddened and buried what looked like a smile behind his knuckles. “No,” he said, across the conference room table at Spotify’s flat iron digs, which will next year move to the more grownup, 4 World Trade Center.

[caption id="attachment_48570" align="aligncenter” width="531"][Image “horacio1" (src=https://bol.bna.com/wp-content/uploads/2017/04/horacio1-e1493235215650.jpg)]Horacio Gutierrez.[/caption]

What Gutierrez did offer, though, was an insight into his experiences on the job, right around the one-year anniversary of when he uprooted his family — his wife, Morella, and three children — from Redmond, Washington, to the city that never sleeps.

“Personally, I love New York,” Gutierrez said. “I had to make the decision whether to live in Manhattan or outside and I came in thinking I would live in Westchester, Connecticut or New Jersey. Ultimately, I chose Manhattan, on the Upper West Side.”

In a 30-minute meeting, Gutierrez spoke to his mission of making Spotify profitable, expanding the company into new markets, while managing the associated risks that come with a global company. He also shared some personal preferences, like his choice of outside counsel: Even though Spotify, with 3,000 employees, is significantly smaller than Microsoft, with more than 100,000, it still uses big firms such as Wilson Sonsini, Latham & Watkins, Mayer Brown, Covington & Burling and Greenberg Traurig, he said. And, he opened up about his relationship with his old boss, president and chief legal officer of Microsoft, Brad Smith. The following has been lightly edited for brevity and clarity.

Big Law Business: How have your early days gone on the job?

Gutierrez: It’s been a year since I came over and took over the legal department at Spotify with the mission to grow and support it and keep up with the growth of the business, but also help the company transition to a state where it operates with public company standards, so to speak. As I’ve come in and dug into the issues, there is no shortage of challenges. Some are the same challenges any technology company faces; they have to do with privacy, security, cybersecurity, with anything that has to do with running a service of global scale that touches consumers. At the same time, behind the technology challenge, is you have the challenges associated with managing the relationship with stakeholders, like rights holders, label and record companies, as well as performance companies nationwide. We want to keep good relationships with them, but also evolve the relationship so that our company can continue its path to profitability. So I have been very involved in discussions with labels, with renewal agreements and record and publishing companies around the world. That’s consuming a significant portion of my time. After I was here, the CEO added it to my plate. I also had the legal aspects to labels, but he added the business function with the engagement of rights holders. That is a significant portion of what I do. And then you have typical litigation and corporate issues that you would expect at a company of our stage of development.

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Big Law Business: How large is the law department?

Gutierrez: The team has grown. When I came in, I think we were 45 people worldwide, and now we are 60 and on our way to 70 on the legal side. And between two or three dozen on the licensing side. So, overall, our organization is over 100 people. Our mission is to support the business, including the expansion of the business. There are many places around the world we haven’t launched the business, so part of it is enabling the growth to new markets.

Big Law Business: The more than 100 people. That accounts for what?

Gutierrez: Think of it as legal and business affairs: legal personnel as well as commercial licensing and business development functions.

Big Law Business: What drew you to Spotify to begin with?

Gutierrez: I had been at Microsoft almost 18 years. I had started with Microsoft as a corporate attorney in the Latin America region. I moved to the headquarters, where I did software licensing kinds of legal transactions. They moved to Europe for four years and I was based in Paris in legal and corporate affairs department. And then I returned to Microsoft in Redmond to take over the intellectual property and licensing function. I did that for a decade and then was deputy general counsel in charge of the support of all the technology and marketing teams, and then ultimately was promoted to general counsel when Brad Smith was promoted to president and chief legal officer. So, I was the manager of the legal function in a global company, in a very large organization of 800 people at the time and actually had a tremendous career progression and a wonderful experience at Microsoft.

Then, I was approached through a headhunter to consider this opportunity. I wasn’t necessarily looking for this opportunity, but the more I thought about it and found out about Spotify, and the challenges it faced, the more I felt that those challenges fit really well: the skill sets and experience that I had developed over almost two decades at Microsoft. And before that, I felt almost as though, if I had the opportunity to join Microsoft in 1982, before the company became public, and if I had become part of the seminal group of people to take the company public, and continue to grow it and expand it around the world... that is something that, around [Microsoft], the opportunity had closed. Even though it had grown in significant ways, it was no longer this feeling of being part of the project to help launch a new company.

Over time, the more I thought about [Spotify], the more I couldn’t stop thinking about it and that became so appealing to me that when I thought about the way I wanted to spend the next decade or the next stage of my career, that really became something very attractive to me. It was not easy. It required uprooting my family from the Pacific Northwest, which I loved, and moving to New York, which is a wonderful city and different from where we used to live. On the whole, the year I spent with the company has really proven that it was the right choice to make at the time.

Big Law Business: You mentioned that much of what you do is on the business side, negotiating licensing deals. Can you share some of the work you’ve done on that front?

Gutierrez: We announced recently that we signed a long term licensing agreement with Universal Music Group and another with Merlin [the global digital rights agency] .Those deals, which I was personally involved in, and those kinds of deals, are at the heart of what I’m doing now with the company.

Big Law Business: So it sounds like you carry more of a business role than purely legal.

Gutierrez: I do both. I do everything from corporate law to employment law to litigation to regulatory work. But then there is also the legal support of the licensing function as well as the business side of the licensing function, which resides in my organization. Think of it as a constant acquisition function as the group in the company that ensures we have the rights to use all the music and video content we have as a service.

Big Law Business: It’s been publicly reported that Spotify is gearing up for an IPO. Can you share how that process has gone?

Gutierrez: No.

Big Law Business: Well, you have a lot of responsibility in your role. How do you manage your time?

Gutierrez: With difficulty. [laughs] The day starts really early, in part because the headquarters are in Stockholm, so our CEO is in Stockholm. Even though our leadership for the company is split between Stockholm and New York, I have a significant portion of our team in Stockholm and in other parts of Europe. So it normally starts with a number of, on a weekly basis, catch up calls with my direct reports, a number of meetings scheduled to look at priorities that are taking place and then it depends on the day. But there is a significant portion of my time that is externally focused, whether it be because of the relationship we are building with stakeholders, like rights holders and publishers, or because of the public policy and government relationships aspect of my job that requires me to take trips to D.C. and Brussels and other capitals in the world as new rules and regulations governing online businesses are being considered and we want to be part of that conversation to ensure we can continue to grow our business and be successful.

[Image “Spotify Chief Content Officer Ken Parks News Conference” (src=https://bol.bna.com/wp-content/uploads/2016/01/Spotify-e1452199806280.jpg)]

Big Law Business: You spoke to your role of growing the business. How do you make Spotify profitable and also distinguish it from competitors like Apple Music and Amazon’s Prime Music?

Gutierrez: There is a part of that that’s the obvious ways in which one competes, which frankly in this world, it’s all about innovation. It’s about bringing features and bringing ideas and aspects to the product that others don’t have or certainly be at the forefront of pushing the envelope when it comes to those kinds of things. When you look at the way Spotify has innovated, the concept of playlist, not just users creating playlists but our own programmatic playlists... these are things that didn’t exist before which have been incredible successes in the marketplace.

There is technology innovation and innovation when it comes to user experience and interface and business model innovations that are part of doing it. I think at the core, we approach the issue from the point of view that we are not just a technology company in the field of music, but we are a music company at the heart that is also a tech company by choice. That is one thing that I would argue differentiates us from some of these other competitors you have mentioned. We also have the unique attribute that, like the other stakeholders in the music industry, record labels, artists and publishers, we need to have a successful business model to succeed. This isn’t an ancillary business for us that we could use as a loss leader, that we could do fine if we just break even. For us, the music industry as a whole has to be successful and that, I believe, changes the nature of our relationship with the other stakeholders because we think we have a lot in common. Our fate depends on the success of everyone else.

The other thing I focus my time on is ensuring that the regulatory environment is such where we and our service can reach consumers, and consumers can choose to have us and that their access to our services isn’t impeded by restrictions that platform providers that control certain platforms on the Internet could impose, sometimes for self-serving reasons. [This happens with] both our competitors, who are competitors in the music streaming business, but also control central platforms that we rely on to access users.

Ensuring that there always remains a level playing field is really essential. So when you look at things like Internet neutrality and platform neutrality and free competition, those are things that we care about and it is part of my mission as head of the legal department to ensure that we are involved in the advocacy related to the regulatory framework in those spaces, so we can grow and succeed.

Big Law Business: How do you engage with outside counsel?

Gutierrez: We use a variety of firms around the world. There are firms in Stockholm that manage our corporate issues and firms that are advising on securities related issues and litigation firms. We have a handful of firms we tend to work with on a worldwide or regional basis. And then we have local firms that advise us on a transactional level. We are a growing but still relatively small in-house legal department compared to others in the technology industry, so the roster of law firms that we would tend to use would be somewhat smaller than the ones you would see Hewlett Packard or Apple or Microsoft or Google use around the world.

Big Law Business: Can you name any big firms you work with?

Gutierrez: We work with Wilson Sonsini; we work with Latham & Watkins, Mayer Brown... and we work with Covington & Burling and Greenberg Truarig. In Sweden, our lead firm in many European corporate transactions is Mannheimer Swartling. I think that covers most of the landscape.

View Spotify’s Litigation Analytics profile on [Image “Blaw - BBNA Product stacked black New with ®" (src=https://bol.bna.com/wp-content/uploads/2016/05/Blaw-BBNA-Product-stacked-black-New-with-®.png)]

Big Law Business: What would you communicate to law firms that want to work with you?

Gutierrez: I don’t think there is anything magical around Spotify, other than we need people who have a sophisticated understanding of the music streaming world. The intellectual property and IP licensing considerations tend to come up in a wide range of the kinds of transactions that we are involved in. There is a heavy component around IP and licensing but particularly music IP and licensing that has its own unique traits. We are looking for firms that will be committed to us and understand our business model and add value. And, firms open to being creative when it comes to alternative fee arrangements. I personally prioritize firms that value diversity. And we look closely at firms that provide services to us. We have worked very hard to maintain a diverse and inclusive team in-house and we expect our outside counsel to support us with a team that is equally diverse. We try to put as much pressure as we can to live by those principles.

Big Law Business: You climbed the ranks at Microsoft and found yourself a top job at Spotify. What advice would you give young lawyers just entering the profession?

Gutierrez: I would say even as law firms would have a tendency to pigeon hole and specialize attorneys in different fields, it’s important — especially if they are considering a transition to an in-house role — to maintain an open perspective and try to develop experiences in a whole range of different legal issues. If you’re a corporate or securities lawyer, make sure you are involved in some litigation matters; some contracting matters; some arbitrations; some technology regulatory advocacy. And trying to maintain a broad perspective is going to be a yet to success in the long run and will give the opportunity to determine what they really want to do. Lots of us start out focusing on a field, only to find that their heart isn’t really in it. And then we transition to something else. Not just for quality of life, but for career success and progression, it’s important for young associates to proactively seek opportunities outside of their comfort zone.

Big Law Business: Can you speak to any of your mentors? Brad Smith ? Others?

Gutierrez: Brad is not only a mentor, but in some ways a role model for me. He was really the person that in my mind embodied somebody who could be an incredibly competent lawyer, who at the same time had tremendous range when it came to subject matter expertise. But he combined that with leadership qualities and a visionary quality when he came to the kinds of important policy issues that leaders in the technology industry need to tackle, as well as structural issues that the legal profession needed to tackle. He was possibly the most innovative and committed leader I know in the area of diversity and inclusion, way ahead of its time.

When you meet people who have a reputation like he has, unfortunately many times when you get to know people like that, you realize the hype doesn’t correspond with reality. With Brad, it’s the opposite. I worked with him for almost 18 years and I was consistently impressed by the things I saw from him and I learned from him. I sit here today having more admiration than I had 20 years ago when I met him. In some respects, one always aspires to model one’s behavior based on that who they think sets the gold standard, and for me, personally, he is that gold standard.

Big Law Business: How do you like New York City?

Gutierrez: Personally, I love New York. Love the City. I had to make the decision whether to live in Manhattan or outside and I came in thinking I would live in Westchester, Connecticut or New Jersey. Ultimately, I chose Manhattan, on the Upper West Side.

[Gutierrez resides with his wife, Morella, his 13-year-old son Tomás, 22-year-old daughter Isabella, a senior at Northwestern, and 20-year-old daughter Alejandra, a sophomore at Rice University.]

Write to Big Law Business at biglawbusiness@bna.com .

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