Spotify Shifts Strategy to Focus on Growing Ad Revenue

As competition in the streaming music industry heats up, Spotify is shifting its focus, reports Business Insider. Spotify will concentrate on growing its advertising

Subscription News: Spotify Shifts Strategy to Focus on Growing Ad Revenue

Source: Spotify

As competition in the streaming music industry heats up, Spotify is shifting its focus, reports Business Insider. Spotify will concentrate on growing its advertising revenue to support its operations.

According to Business Insider, Spotify issued an internal mission statement to staff a few weeks ago, outlining the new strategy and asking the company’s tech and product employees to try Spotify’s ad-supported freemium service for five days.

Currently, Spotify has 100 million listeners, but only 30 million are paid subscribers. That creates an opportunity for advertisers to get in front of 70 million listeners. Despite the 70-30 split between free and paid listeners, 90 percent of Spotify’s revenue comes from the paid subscribers, says Digital Music News. With so much competition with rivals like Tidal, Pandora and soon Amazon, it is dangerous to rely so heavily on one revenue source.

Subscription News: Spotify Shifts Strategy to Focus on Growing Ad Revenue

Source: Spotify

Business Insider says that Spotify will expand its advertising options for brands and may even offer video ads at some point. On the Spotify website, a page specifically for brands explains why they’d want to advertise on Spotify. Here are just a few of the benefits:

–      The average user listens to 148 minutes of Spotify per day.

–      Its listeners share tracks, artists, albums and playlists on social media.

–      Brands can target their audiences based on Spotify data (what they’re listening to, who they are, when and how they’re listening)

Spotify is also trying to differentiate itself through innovative partnerships. Tech Insider reports that Spotify has signed a deal with female-friendly dating app Bumble to help match potential mates based on their music tastes.

Insider Take:

Though the streaming music industry has been around for a while, it is experiencing growing pains and trying to evolve. Not only is there more competition, but problems with licensing, royalty payments, copyright and financial sustainability have been plaguing companies like Spotify and Tidal in the last year. Bad publicity and class-action lawsuits haven’t helped.

Each company is trying to find its own unique niche while trying to remain financially viable. That means identifying and tailoring a business model that satisfies all criteria. Like Pandora, Spotify has struggled financially. Last year the privately-held company lost $188.7 million, but it generated revenue of $2.12 billion, an improvement over 2014, reports Recode.

The time to change is now, particularly as Spotify eyes an IPO. It needs to maximize its value to entice investors to take a chance.

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