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Spotify's Sean Parker and Daniel Ek on Music and Piracy

Spotify
Photo by: Jon Aslund
Spotify

Sean Parker transformed the music industry once with Napster, now he's doing it again with Spotify, where he's now a Board Member.

He and Spotify CEO Daniel Ek took the stage at the D conference to talk about Spotify's new music model. They're not going after Apple's business, they're competing with piracy. And in the process they're redefining how people find music -- now through their friends-- and how they buy it -- in play lists, instead of singles and albums.

Ek and Parker point out that it's a lot easier to get people to buy a play list than an album-- custom curation is the new business model.

Spotify has 18 million songs to Apple's 31 million, but Ek says it has the most important ones -- people listen to 80 percent of their music. And as he pointed out to me, that's more than anyone could listen to in a lifetime, so the difference between 18 million and 31 million is irrelevant. Ek and partner didn't reveal any new numbers-- the service has 10 million active users and 3 million paid users, but they did talk about the future of the business model.

There's been a lot of conversation -- on stage and off -- about the new definition of ownership. If you want to access music on any device then you have to pay: ownership is just about having access when and where you want it.

Can Apple or Amazon turn on a similar service to Spotify's freemium model? They probably can, Parker and Ek said, but they people are underestimating the "network effects," and Spotify's real value is the fact that it has 700 million play lists. That's how Spotify plans to hold on to its space in the fast-growing music subscription market-- certainly not software patents. "We're not huge fans of software patents; I've never been a fan of software patents," Parker said. "Even when they're enforceable they don't offer the same protection as a network effect."

Did Apple try to keep Spotify of the US? Ek wouldn't answer but Parker conceded: "there's some indication that was happening." He drew big laughs with his dig at the weak music industry and the role his Napster played in shrinking it: "it's a small industry, certainly much smaller than it was 10 years ago"

Ahead of the launch of his next startup, Airtime, next week, Sean Parker revealed a few details. It's not a music service, but is all about video chat, piggy backing on the fact that 100 million web cams are shipping this year. Parker noted that 950 million people have typed up a profile of themselves but that data's only been used to target ads. We'll see how Parker wants to use that information when he officially launches Airtime on June 5.

Questions? Comments? MediaMoney@cnbc.com

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.