Spotify for Advertisers: An Analysis

Just before you are about to take off for a ride or a run, you take out your phone and start your favourite playlist of Spotify. If you’re not a paid subscriber you’ve probably seen a pop-up that states, “Watch this video from Pizza Hut and get 30-mins of ad-free experience.” This pop-up is what’s called a sponsored session — an inventory that Spotify has for advertisers.

The Swedish music streaming app, one of the global giants in the audio streaming realm, rolled out its India operations on February 26, 2019. Globally, it claims it has 248 million monthly active users, of which 120 million pay for the service. “Globally 57 per cent of Spotify users are on the free ad-supported tier. In India, the number is significantly higher, which means there are more people available to deliver ads,” says Amarjit Singh Batra, managing director, Spotify India.

This explains the Pizza Hut sponsoring a session. The audio streaming service says, so far in India, it has associated with more than 50 brands. In a bid to explain the various advertising tools available on its platform, Spotify addressed brands in a recently held event at Mumbai. Spotify announced the launch of podcasts in India with three originals and Batra says he is "bullish" about podcasts doing well in terms of both consumption and advertising spends.

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In no time, digital has become one of the biggest contributors to the Rs 1660 crore (FY ’19) music industry. Last fiscal, it registered 15.3 per cent growth more than the compounded annual growth rate (CAGR, last 5 years) of 13 per cent. According to KPMG estimates, the monthly active user base of audio streaming platforms in India has grown from 110 million in March 2018 to 165 million in March 2019. The accounting firm attributes the growth to low data prices and launch of international music streaming platforms such as YouTube Music, Amazon Prime, Spotify and others. In terms of time spent per user, on an average, the Indian consumer spends 21.5 hours listening to music — higher than the global average of 17.8 hours.

However, this growth is yet to translate to subscription revenue. The size of the audio streaming market is estimated to be around Rs. 1200 crore, of which, subscription revenue is 120 crore, the remaining 90 per cent is advertising money. Times Internet's Gaana takes the lion’s share of the ad pie followed by JioSaavn. Amazon Prime Music and YouTube Music do not support ads while Spotify and Hungama, Wynk follow a hybrid model.

Batra believes, the more people spend time on the platform the more likely they are to pay for the service. However, he believes the transition will take time, which makes the pitch to the brands more important at this stage. Batra says, “We are a technology company at heart and we collect billions of data points per day and that is the differentiating factor. We use that data to do a lot of stuff — curation, recommendation, personalisation and more. We also use the data to deliver the right ad to the right person at the right time.”

The brand prides itself on its millennial user base — the hallowed GenZ — that most brands are after. “In India, our larger user segment belongs to listeners below the age of 24 and the rest of our users are below 35. Globally, 18-24 is the largest segment of Spotify, they are also more prone to look at advertisements and respond to it,” Batra opines.

Recently sportswear brand, Adidas associated with Spotify to promote its ‘Home Of Classics’ range. Through Spotify API, adidas created a personality quiz. "The idea was to create an ecosystem for the consumer where we are able to engage consumers in the experience and lengthen the time that they spend connecting with the brand and experiencing it," says Manish Sapra, senior marketing director, adidas.

He adds, "We studied the Spotify user base and found out that 59 per cent users were below the age of 24 — perfectly matching our core consumer. For the 'Home Of Classics' range we wanted to target young-startup-professionals. Through Spotify's data, we found that there were moments when this audience was involved in a specific type of music. We identified that the young startup consumer was interested in a particular playlist called, ‘getting ready'. That was the best time for us to engage with that consumer.

Once the personality quiz was completed, adidas curated a playlist depending on the answers keyed in and at the same time, also offered an Adidas product from the 'Home Of Classics" range. "The quiz saw a completion rate of 36 per cent, almost 10 per cent more than what is considered excellent as per Spotify's own platform benchmark. It was also observed that consumers who engaged with the brand for a longer duration on the platform were 11x more likely to buy the product and browse the entire collection," shares Sapra.

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Like the adidas case shared by Sapra and Spotify, most marketing initiatives on digital, be it audio or video or search, are data and metric-driven. However, there isn't a standard-industry-driven-third-party measurement body measuring the data. Not so long ago, FMCG giant, P&G's marketing boss, Marc Pritchard had defined the media supply chain as, "Murky at best and fraudulent at worse" while speaking at a forum addressing issues such as viewability and ad-fraud.

Tushar Vyas, chief strategy officer, GroupM, South Asia, believes the lack of a standard-third-party measurement body is a non-issue in the current mix of things. "It is not true that there is no measurement. In fact, there is over measurement. What you measure is at a campaign level and activity level and may not be measured at the universe level. As we move towards digital the relevance of measuring the universe is going down. In other mediums (TV or print) we measure (universe) because we are buying at a placement level and not the audience level,” says Vyas.

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He explains, "Here we are buying at a campaign level targeting a specific audience. We are very clear in terms of what we are looking for and where we are going to get that from. On the other hand, when you buy a front page of a daily or a slot within a television programme who is watching it is not something you can control; on digital you can. That is why not having a universe measurement body does not mean, lack of measurement."

For Spotify, Gaana, and JioSaavn to get more money out of advertisers will they have to eat into Mirchi, Red FM, Big FM's pie? “Not yet,” says Vyas. “Right now, ads on audio streaming platforms are a part of the digital marketing spends, eventually these things will get converged. At this stage, platforms such as Spotify are digital advertising opportunities where audio is the format," he concludes.