Today Spotify will embark on one of the most hotly anticipated initial public offerings (IPOs) since Twitter went public in 2013 and Snapchat started selling shares back in 2017.
The Swedish streaming service has taken an unconventional approach, opting for a direct listing which circumvents the cost of an IPO by simply enabling existing shares to be traded on the New York Stock Exchange.
The chance to buy shares in Spotify is likely to prove extremely popular with investors. Globally the streaming service has amassed 71 million premium subscribers, up 46% year on year, and 157 million active users, an increase of 28% since 2016.
The average customer spends 25 hours a month streaming music on Spotify. Spanning 65 markets, Spotify’s audience has, to date, created two billion playlists from a library of more than 35 million songs.
Europe is the company’s largest market with 58 million monthly active users, accounting for 37% of its total audience. Spotify claimed a 42% share of the global streaming market in 2016, boasting a 95% share in Sweden, 59% in the UK and 41% in the US.
The streaming service has a dual subscriptions and advertising business model. Premium subscriptions accounted for 90% of Spotify’s total revenue in 2017, according to documents filed with the US Securities and Exchange Commission on 23 March, in preparation for the IPO.
It’s almost a return of radio-like thinking because brands now have to have their own unique sound.
Neil Shah, Smirnoff
Last year premium subscriptions delivered €3.7bn (£3.2bn) in revenue, up from €2.7bn (£2.4bn) in 2016, dwarfing the ad supported side of the business, which generated €416m (£365m) in 2017. Its ad business did make a profit of €43m (£38m) for the first time last year, however, after making a loss of €35m (£31m) the previous year.
Spotify has approximately 90 million ad supported users, typically aged between 18 to 34, who are given limited, shuffle-only access to the platform’s full catalogue. Brands serve display, audio and video advertising to these listeners, delivered through impressions.
Despite being a far smaller element of the business, Spotify’s advertising arm has increased revenues by 41% since 2016, prompting the streaming giant to describe it as a “strong and viable” element of the business with “considerable long-term opportunity for growth”.
Finding new formats
To explore the possibilities of enhancing its ad revenue, Spotify is working on a number of different formats, including podcast partnerships with publishers like Buzzfeed, sponsored playlists and self-serve advertising platforms, as well as trialling skippable audio ads and finding new ways to use programmatic.
In March, Spotify revealed its first ever 3D audiovisual advert, created in collaboration with film company Lionsgate UK to promote the release of horror film Ghost Stories.
Audio from the original trailer was re-purposed to give a 3D audio effect on top of the existing trailer, creating an immersive experience. In the first week of release the 3D ad received click-through rates up 50% from benchmark level, according to Spotify stats.
Last month the streaming giant also rolled out its self-service Ad Studio feature to the UK, which allows brands to create their own adverts within the platform.
The advertiser picks its audience based on age, gender, location, activity and musical taste, selecting whether to opt for mobile, desktop or both. They then set the budget and campaign dates, and use Spotify insights to track the campaign’s success.
Spotify managing director of sales for Europe, Marco Bertozzi, believes Ad Studio will open the possibility for smaller advertisers to get involved on the platform.
“I think at the moment we tend towards working with big clients and agencies,” he explains.
“Ad Studio is going to allow us to open up a whole raft of new, potentially smaller advertisers, who will be able to log in individually and build their own campaigns.”
Spotify is also keen to take on mainstream radio. The streamer believes it can differentiate itself from radio’s “linear model” by offering personalised experiences based on real-time insights into listeners’ behaviour across a variety of devices from smartphones and desktops, to car audio, games consoles and in-home devices.
This all plays into a resurgent interest in audio seen over the past year, as advertisers begin work on defining the sound of their brand, Bertozzi explains.
“With Spotify we have the intimacy that radio has always delivered, but because we can apply the data and insight it’s really important that that creative message matches those moments adequately.
“If you just get a jarring radio ad you’re probably missing an opportunity. Think about the creative and how it sounds to someone in that intimate moment. It’s vital you tailor your message.”
This opinion is shared by Cristina Sarraille, senior strategist at media agency We Are Social, who believes brands need to start thinking about how their brand sounds and what position this occupies in the wider cultural landscape.
“We got into this area over the past few years of sound blindness, where everyone was so excited to think about narratives around images and text, ignoring the use of sound in the way we communicate about the brand,” she argues.
“An agency may say, ‘let’s work with Spotify’. But the brand and the agency should step back and say hold on, do we have a sound for our brand? Do we actually understand the music ecosystem of the culture where our brand is supposed to be playing in order for consumers to identify that sound with our brand?”
Data making a difference
Streaming intelligence data gathered on the moods, preferences and listening habits of Spotify’s 157 million active users is being harnessed by brands to build engaging campaigns. Bertozzi claims the company’s number one priority is respecting its listeners’ data.
“This is our only business model. That app and the music that comes out of it is everything for us, so making sure that that relationship is not disrupted is really important. We have 100% logged in users, so we have a direct relationship with them. All media is on our platform, so those relationships are tightly controlled,” Bertozzi explains.
“A lot of advertisers want our data and they want to put it in data warehouses, we just don’t do that. Our message to advertisers is that we’ve got loads of great ways that you can use this streaming intelligence, but it has to be respectful to our users and it has to be on our platform.”
A recent example of a brand utilising streaming intelligence to share an important social message is the collaboration between Spotify and vodka brand Smirnoff.
Based on Spotify data, which revealed none of the top 10 tracks streamed in 2017 were performed be female artists or bands, Smirnoff decided to redress the balance in time for International Women’s Day 2018 with the launch of the ‘Smirnoff Equalizer’.
The tool provides users with a percentage breakdown of the number of male and female artists they have listened to over the past six months, allowing them opt for an “equalised” playlist that balances it out with female artists personalised to their musical tastes.
Neil Shah, Smirnoff global senior brand manager, describes the campaign as a great example of a brand being clear on its purpose and then leveraging it to have a positive impact on society by delivering something interesting to consumers in a personalised way.
The ‘Equalizer’ tool plays into the way Spotify’s business model works by rewarding artists who attract more streams and bigger fan bases with greater exposure.
The campaign’s core KPIs were to raise awareness of the gender bias in music and enable users to take action. Shah’s team measured the number of visits to the Smirnoff Equalizer platform, paid impressions and earned reach. It also analysed whether listeners were generating and sharing their own playlists, as well as reviewing how overall listening statistics were being affected by the campaign.
With the rise of voice search, Alexa and audio-based platforms like Spotify, Shah believes that marketers will increasingly need to think beyond just their brand’s tone of voice.
Going ‘all in on music as a platform’ has enabled Bacardi to drive real results with its paid strategy.
Fabio Ruffet, Bacardi Europe
“It’s almost a return of radio-like thinking because brands now have to have their own unique sound,” he explains.
“With partnerships like Spotify, where the opportunity exists to interact with consumers in a meaningful and personalised way, it’s important that you have something relevant and interesting to say, otherwise essentially you’re going to be a brand that’s interrupting a user’s listening experience, rather than enriching it. I fundamentally believe brands don’t have the right to do that.”
Brands are also finding new routes to connect with listeners on Spotify by linking up with high profile artists.
Making the Spotify environment shoppable is a focus for merchandise specialist Merchbar, which enables artists to bring product listings to their Spotify profile pages. Merchbar recently partnered with beauty company Pat McGrath Labs and US popstar Maggie Lindemann to sell cosmetics from directly from the singer’s Spotify artist page, an industry first.
Merchbar founder and CEO, Edward Aten, explains that Spotify offered the perfect opportunity to take the collaboration between Pat McGrath Labs and Lindemann beyond traditional distribution channels and reach fans in new ways. He believes tie-ups between brands, artists and commercial partners will be the future method to make Spotify shoppable.
“Artists are the most influential group of people in the world, so whether it is through their own merchandise or branded collaborations there is tremendous possibility,” he claims.
“The best part is that as the channels and opportunities keep growing, it’s a huge win for everyone involved – something that’s super rare in the music industry. At the end of the day, you have to start with something that is truly authentic to the artist and resonates deeply with their fans.”
Last year when rum brand Bacardi wanted to change the way emerging Caribbean artists were being represented in the music industry it teamed up with DJ collective Major Lazer on the ‘Music Liberates Music’ project.
The campaign centred on ‘The Sound of Rum’, a Spotify playlist of songs from up-and-coming Caribbean artists, supported by a track from project ambassadors Major Lazer. Every time fans streamed Major Lazer’s track ‘Front of the Line’ and listened to ‘The Sound of Rum’ playlist Bacardi donated studio time to the emerging artists.
Major Lazer’s song ended up being streamed 4.6 million times, contributing to 127 hours of studio time for the Caribbean acts. According Fabio Ruffet, creative excellence director for Bacardi Europe, this activity also boosted brand affinity, made listeners more likely to view Bacardi as a “relevant brand” and reinforced the brand’s credibility in being associated with this category of music.
Ruffet believes that going “all in on music as a platform” has enabled Bacardi to drive real results with its paid strategy.
“We have been able to target the right audience at the same time as leveraging our key artist relationship with Major Lazer in an innovative way and giving up-and-coming Caribbean artists a chance to share their music with the world. We had multiple media touchpoints from casual fans all the way down to hardcore EDM [electronic dance music] lovers.”
Data from Bacardi’s ‘Sound of Rum’ playlist reveals that Fridays and Saturdays were the peak days for streaming, with Afrobeat, Dancehall and Crunk standing out as the most popular genres.
Bacardi used similar insight when devising its branded moments campaign on Spotify in 2016. When the brand saw its audience was listening to its party playlists, Bacardi rewarded listeners with 30 minutes of uninterrupted music in exchange for watching a short video. The brand also served mobile overlay ads providing drinks recipes for them to try.
Ruffet advises brands looking to carve out a space on Spotify to leverage data to unlock consumer insights and never forget to get the basics right first.
“Be open to new opportunities, but start with the basics – standard products are proven to drive business results, so it’s important to leverage them to their best,” he suggests.
“Customise. Creative should fit people, platform and a moment in time. And listen to your partner, they know the platform, so can save you from making simple mistakes.”