Can Ads Make Spotify A Profitable Company?

Estimated Reading Time 5 minutes

With Spotify now hitting 30 million paid users , 100 million overall; they have hit a notable milestone in the company’s short history. It will however not be known if the company has finally turned over a profit for the first time until later in the year, with last year’s financial results showing an operating loss of $165.1m (£119m).

Year Revenue Operating Loss
2014 €1.08bn €165.1m
2013 €746.9m $91.2m
2012 €430.3m €80m

 

As long ago as last January Spotify had announced that they had 15 million paying subscribers and 60 million active users in total, in June, the figure would rise to 20 million paying subscribers and over 75 million active users. The fact they are now at 100 million in total with 30% of them being paying subscribers shows that as well as leaving feisty competitor Apple music in their dust with only 11 million subscribers, they have been converting listeners on the ad supported free platform at an alarming rate.

Despite Spotify’s recent surge in subscribers, it remains to be seen if this will help the company start turning a profit, with recent news that they had secured a $1bn investment through convertible debt. A debt that they will eventually have to pay substantially for, having to pay 5% interest, as well as giving investors the ability to convert the debt at a 20% discount.

How can ads turn it around?

This is where Spotify can really hone in on their ads and “Brands” revenue stream to try and turn the corner. As they have such a broad range of ad formats available across both desktop and mobile already, and with such precise, extensive targeting options, all they need to do is broaden their clientele. With no recent data available of the income their ads generate, 2013 and 2014 brought in 10% and 8.5% of total revenue respectively. Since then however, one would think that Spotify has improved the performance of their ads, as the overall quality has been dramatically improved:

Formats – With over half a dozen ways to serve their ads, businesses can produce ads to great affect without people being delivered the same message time and time again. The various means of being exposed to these adverts has a much more positive impact on the audience, increasing the value of advertising through this medium.

Targeting – One of the most impressive features that Spotify possesses is its varied capabilities in terms of how it can target a particular audience. As well as having a large quantity of data available to them through users linked Facebook accounts, they have the ability to target people through the music they listen to; so can appeal to people via genre, mood, and activity playlists. Targeting by temperament allows the marketer to analyse listening habits and be able to tell a story about each individual user.

When factoring in the increased user base of 100 million (70 million of which being free users, therefore potentially being expose to such ads), the audience is there for Spotify to capitalise on. The problem at the moment lies in Spotify itself, the availability of ads is closed off only to those with a budget of at least $5000, and your product must have “very broad appeal”. Obviously this really closes the door on a lot of prospective marketers, if they are willing to be more open-minded and incorporate Facebook ads or even Google Adwords approach, they may find that through increased advertising clientele they start to turn a corner that their profit margin so desperately needs.

Nick Blane
Nick is a recent graduate of Music and Live Events Management from Bucks New University in High Wycombe. Though his business background centred within the music industry, his exposure and involvement in marketing and social media engagement for brands, helped him take a more holistic approach and apply his connection of digital with sociology along with his entrepreneurial skills.