Streaming Media
Spotify is expanding into Connected TV by bringing video ads
to the Spotify app on the Roku platform.
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The Spotify app has been available on Roku devices for more
than a decade and Spotify's ‘Video Takeover’ ads, which already reaches 551
million people streaming music across mobile, tablet, and desktop devices,
will soon include CTVs, beginning with the Roku platform.
“In terms of a consumption method using a TV to listen to
music is still relatively small [the primary device is the mobile phone] but
there is definitely a good audience that Spotify can reach,” Craig Armer,
Global Strategic Insight Director at Kantar, tells Streaming Media.
Kantar research finds that 16% of people streaming film and
TV in the US are using a Roku stick – that’s huge number of users. And only
third of Roku users are using Spotify- meaning the music streamer have a
potentially massive group to tap into.
“We’ve seen free trials are a popular driver for people to
try services for the first time so this could unlock a new audience for
Spotify,” says Armer.
Alison Levin, VP, ad revenue and marketing solutions at
Roku, said in a statement, “Roku and Spotify are uniquely positioned to make
the largest screen in the home work harder for brands.”
Of Spotify’s 551 million monthly users, 220 million are
subscribers but despite generating $12.4 billion revenue in
2022, a 21% increase year-on-year, it posted a $248 million loss. The service
has never published a net profit.
“Platforms like Netflix and Disney+ tell us that that people
on ad tiers generate more revenue per user than those on those on ad-free
tiers,” Armer says. “Obviously with Spotify the ad tier is free to use but it
did introduce a first modest price increase (up a dollar to $10.99
for those with an individual plan in the US) for those that are paying and this
has not affected the overall number of subscribers so that should yield higher
revenue.”
Video ads will begin alpha testing this month, with
additional markets following. In the future, more video ad products, such
as video podcast ads, will be added. Podcast ad spending has increased at an
annual rate of 19 percent in the U.S. (or six percentage points
faster than other digital ad spending growth rates)—and an astonishing 60
percent in Europe.
The deal with Roku is the inaugural step in launching a
Spotify CTV Partner Network. Ad Age expect CTV ad spending to grow 21%
this year to $25 billion in the US and $40.90 billion by
2027, making it one of the fastest-growing ad sectors. Spotify and Roku will
share responsibility for selling inventory, but did not disclose how revenues
would be shared.
Spotify’s head of advertising business
development, Emma Vaughn, told Ad Age, “CTV is essentially the
highest growth category for where advertisers are spending and where the
eyeballs are.”
Partnering with CTV providers lets Spotify tap into growing
spending, but it also factors into Spotify’s plan to create an advertising
stack that lets advertisers target users using Spotify on various platforms.
“The dream is ubiquity,” she added. “We’re going
to bring the Spotify experience with all of these new consumer and advertising
products to every point of consumption.”
Spotify reported a $41m hit on podcasts in the second
quarter and has made heavy cutbacks in the division, laying off hundreds of
staff members, after spending $1bn (£830m) on the format for creators
including Meghan Markle, Barack Obama and Joe Rogan.
Today it has pivoted to concentrate on audiobooks, making
150000 titles available as part of the subs package to members in Australia and
the UK.
Until now, users have been able to purchase individual
titles, with Spotify directing downloads through its own website due
to an ongoing row with Apple over fees on in-app purchases.
The update means paying subscribers will be entitled to 15
hours free each month, equivalent to roughly two audiobooks of average length.
“Expanding further into audiobooks means Spotify is having
to navigate different content types and make sure people can still discover new
music,” says Amer. “We think that user satisfaction with Spotify dipped 18
months ago but over the last 6 months is has been improving ways to serve up
music recommendations and discovery.”
Indeed, in its recent Music On Demand report
Kantar found that Spotify remains the largest music streaming service by a
significant margin, facing down threats from Amazon, Apple, and YouTube.
It attributes its success in part to strong word-of-mouth
marketing “driven by exceptionally high satisfaction levels among current paid
subscribers,” says Armer. “Notably, Spotify's recent innovation focuses on
enhancing music discovery, rather than prioritising podcasts and audiobooks as
it had in recent years.”
“Some of the most important features that people want in a
music service involve being able to create playlists and get decent music
suggestions based on their music habits. Spotify have always led the pack when
it comes to those features. Their satisfaction rate among users is always
higher than for competitors.”
That’s been assisted by its use of AI to build and increase
engagement. This includes the AI DJ feature, launched in North
America earlier this year and now rolled out to 50 global markets.
The AI DJ uses OpenAI’s Generative AI and an AI-generated
voice built using 2022
acquisition Sonantic to curate a personalised selection of music
combined with spoken commentary to emulate the feeling of a live radio station
complete with running commentary.
According to reports Spotify now appears to be
developing AI-powered playlists. References discovered in the app's code
indicate the company may be developing generative AI playlists users could
create using prompts.
Key demos for music streaming
In the UK specifically Kantar found that TikTok rates highly
(26%) among Gen Z for discovering new artists. In terms of overall listening
habits Gen Z are more likely to be using music services generally and to pay
for the experience.
“This group are the most engaged with music and the ones
most willing to pay. That means they naturally skew to Spotify. Older age
groups are likely to be using more free tiers and more likely to have a wider
range of services. Amazon features more heavily among over 55s, for example,
and Apple Music peaks in the 35—54 age group, those with more disposable
income.”
Unlike the more saturated video market, the whole music
streaming industry has considerable room for growth. “When 33% of
households that subscribe to a VoD service, such as Netflix or Disney+, still
do not stream music digitally, that represents a massive
opportunity for music services to expand,” Armer says. ““Realising this
untapped potential is critical to drive both incremental growth for music
services and the expansion of the entire digital music industry. Platforms need
to make their offer more appealing to older age groups which is where most of
that headroom is.”
That’s just looking at ‘western’ markets like Australia, the
US and Europe. Spotify will also have its eye on expansion into markets in
LatAM and Asia.
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