News - 21/04/2015

Spotify highlights 53% rise in ad revenues, is it enough to convince labels freemium works?

Spotify highlights 53% rise in ad revenues, is it enough to convince labels freemium works?

Spotify has released some interesting figures around its ad revenues, reporting that they grew 53% between Q1 2014 and Q1 2015. 

Mobile ad performance was particularly strong with a 380% growth, although if we look at this figure against the 53% overall ad-driven revenue growth it shows that mobile ads are either still a small part of those revenues or that desktop ads suffered a steep decline - the former being more likely. 

The company steered clear from providing actual figures though. Spotify clearly means to highlight that the ad-driven side of its business can become a meaningful proportion of its revenues - whilst in 2013 it was just 10% - but given that between Q1 2014 and Q1 2015 the growth in its user base was also around 50% it would be necessary to look at the actual figures to understand if the improvement in the monetisation of free users via advertising is promising enough to sway and increasingly skeptical Universal Music Group. 

The company aims to increase its advertising rates by providing a more comprehensive targeting system to advertisers, integrating demographic data as well as listening data which will include playlists and genre data. This could enable companies to better target users who are just waking up, about to go to sleep, running or cycling and thus provide better conversion rates. 

The announcement is strategic as it comes in the midst of two important milestones: the reported new $400m round of funding and the negotiations for the renewal of its licenses as Universal Music Group pressures the company to limit the free tier to push users towards the premium offering. 

Spotify in 2015 is facing increased competition from the likes of Apple - whose music streaming service is expected to surface at WWDC - and new entrants such as TIDAL, plus obviously the usual suspects including Deezer, Rdio and Rhapsody.

 

(Andrea Leonelli)

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