Spotify Remains Number 1 Music Streamer
Spotify is expanding into Connected TV by bringing video ads to the Spotify app on the Roku platform.
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.