Spotify on driving personalised ads, dealing with Tidal and its plans for global domination

With digital music revenues responsible for nearly half (46%) of music sales globally in 2014, equaling physical CD sales for the first time, according to the latest research by record industry body the IFPI, Spotify is readying an improved targeted advertising feature for brands at a time when streaming is fast becoming a daily thing for consumers across the planet.

Spotify’s new playlist targeting service, which will launch on May 1, will allow brands access to customer segments based on their musical preferences.

It could see BBQ brands such as Weber specifically targeting ads to appear to subscribers of Summertime playlists or Coca Cola tailoring its ads to only appear within songs which adhere to its ‘Happiness’ branding – Hello Pharrell! The service will also enable brands to target ads based on age, geography, genre and language.

There are now 41 million paying streaming consumers, which represents an estimated 46% increase year-on-year and worth $1.6 billion in revenue, or about 26% of the overall digital market. And although Spotify’s latest advertising features won’t impact on paid subscribers, who get an ad-free service, it will transform the way its free model operates.

“People spend, on average, two hours or more listening to Spotify a day, so that’s a great window for us to help brands talk to consumers at the right times,” according to Spotify’s VP of sales for EMEA Jonathan Forster.

He says that there is currently a 75% to 25% split on Spotify between free and paying users.

“We are a long time away from utopian future where every ad is relevant to every user, but we do definitely think we are giving the smart brands the opportunities to aim towards that sort of personalised future,” adds Forster, before getting in a dig at the rapper Jay-Z’s recently acquired streaming rival Tidal.

“When I think of other streaming services, there aren’t many who have a sizeable, real commitment to free, and ads funded as apart of their business offering.

“Look, if I am McDonald’s then Tidal doesn’t carry brand messages so their launch is nothing to me.”

The Tidal question

Questions are currently being asked of Spotify, with Tidal, a service with a minimum £10 monthly fee and no free option, grabbing the headlines since its recent, heavily-marketed launch. Rapper Jay-Z, who owns the service, appears to be confident he can get his musical friends, including wife Beyonce and rocker Jack White, to pull their discographies from Spotify.

Apple, meanwhile, is readying its own streaming service having recently acquired the Dr. Dre’s BeatsByDre headphone brand.

“I don’t think either will be too damaging. When Spotify launched piracy was our competitor and that was tough,” adds Forster.

“But we succeeded as we now have 60 million users and have given $2 billion dollars back to the music industry. It is difficult to see how you can get that scale without a free service. I am most worried about people not being able to get the stuff they want (due to the paid models of Tidal and Apple) and going back to pirating it.”

Spotify's Jonathan Forster is confident the service can continue to grow despite increasing competition within streaming
Spotify’s Jonathan Forster is confident the service can continue to grow despite increasing competition within the streaming space

And is there a fear of losing artists?

“Artists want music to be heard by as many people as possible and make as much money as possible, Spotify delivers on both” adds a defiant Forster. “I certainly expect them to want to keep their share of the £2bn we have created so far and all that we will create in the future.

Growth plans

Over recent years, Spotify has ramped up its commercial offering having added video ad products to brands last year. Fuelled by that decision, the brand saw a 380% year-on-year climb in mobile ad revenue; a figure Forster says is expected to rise by even more in 2015, with 75% of Spotify users accessing the streaming service via Smartphones.

“We believe everyone in the world will eventually stream and, with more Americans streaming than not streaming music, getting to one billion Spotify users is still a realistic target,” he adds.

“What brand wouldn’t want to target that sort of audience?” Forster says digital audio adverts are worth $1.1bn in the US, but only EUR40m in Europe, something he is aiming to address.

He also sees opportunities in radio and hardware, the latter through Spotify Connect, which enables the Spotify app to become the remote for devices such as speakers and laptops.

“If you want to stream us in your house, you can use a high end speaker with a dongle,” he explains, before hinting. “I’m shocked nobody has licensed any Frozen Spotify speakers, as they would sell to every eight year girl on the planet.

And pointing to Spotify’s recent launch on Sony’s Playstation 4, which brought in two million new users, he adds:

“There’s plenty of opportunities for Spotify to work more closely with third party brands and we will.”

Last year, Spotify uncharacteristically dabbled in above the line advertising launching a UK TV campaign, and Forster isn’t ruling out a follow-up.

He concludes: “We are a low margin business, with 70% of revenues going to artists, so we don’t have huge marketing budgets to throw around.

But with Seth Farbman joining as CMO from Gap, he has brought in a wealth of creative ad experience to a bunch of guys from Stockholm who are already learning a lot from him.

In the UK we have productive partnerships advertising through third parties such as the BBC and Vodafone, and I think we will push that further for now, but we are looking to crack the code so we can potentially do more ATL as it’s always nice when your mum can see your ads on the TV.”

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