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Calling its new venture Sponsored Sessions, Spotify is introducing the method as a means of enticing new sponsors to help it rise above the skin-tight profit margins of Internet radio. Although music streaming sites are extremely popular, garnering millions of users, Spotify, and its competitors like Pandora, Rhapsody, and Beats Music, pay huge royalty fees that make it tough to turn a profit. The new ad model is a way to both bring in more cash, and give Spotify’s 30 million free users a choice in their ad experience.
In addition to Sponsored Sessions, the company is introducing something called Video Takeover for its desktop application. The takeover method is a pitch to major brands as a way of engaging with Spotify’s large audience of avid users, allowing them to essentially hijack the Spotify home screen with a quick video ad in the middle of a session, before returning to the tunes.
Partners of the new video ad services include major brands like Coca-Cola, McDonalds, NBC Universal Pictures, Target, and Wells Fargo. Claiming its users spend an average of 146 minutes per day on its service, Spotify is hoping to garner a whole new revenue stream from the video spots. For its big name sponsors, the video ads are a way to tailor their products for a more specific demographic of savvy music lovers.
Ads will likely play a big role in the future of digital music, not only for music streaming services, but also for the industry as a whole. In January, direct digital music sales from services like iTunes and Google Play recorded its first decline since the iTunes Store set up shop. A large part of that downturn in sales is thought to be due to the sharp rise in popularity of streaming services like Spotify and its contemporaries.
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However, as any professional musician can attest, it’s hard to make much money from digital streaming sites. The overall decline in revenue for recorded music has hit the entire industry hard, from the recording studio, to the front office of major labels. Lesser known artists, often at the bottom of the totem pole when it comes to revenue sharing, are finding constant touring to be one of the few methods left that is lucrative enough to make a living.
All of that leaves streaming sites in a precarious position as the next wave in popularity. If sites like Spotify and Pandora can begin to capitalize on their marketshare with new ways to sell their service, might that increase in profit trickle down and bolster the recording industry as a whole? Only time will tell, but for now, it looks like Spotify is leading the way into the brave new future of digital music.
Spotify’s new video ads are slated to arrive in the fourth quarter of the year in six major markets, including the United States, United Kingdom, Germany, France, Spain, and Sweden, with a global rollout planned for 2015.
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