Byravee Iyer
Dec 5, 2013

Spotify pitches to artists to boost its brand

ASIA-PACIFIC – Digital advertising executives see huge potential in music-streaming service Spotify’s new website for musicians, Spotify Artists, which aims to shed light on how the company’s business model works, how it determines artist payouts and what they can expect to earn as the company grows.

Spotify's goal is to grow its listeners and advertisers
Spotify's goal is to grow its listeners and advertisers

The site’s overall goal is to grow the service in terms of both listeners and advertisers. “This is an excellent piece of communication,” said Justin Tauber, head of platforms, Profero. “Provided artists can find it, it should have a positive impact on Spotify’s reputation in the industry.”

During its first six months of operation in Asia, Spotify saw growth across different ad platforms, particularly in audio, display banners, homepage takeover and billboards, Sunita Kaur, Spotify’s director for Asia, told Campaign Asia-Pacific. To support regional expansion, the company has added free analytics for artists to access real-time data on their music streams. It also plans to help musicians sell merchandise from their Spotify profiles. Brands that advertise on the service should see this as a positive development because the moves underpin the site’s ecosystem development.

The new musician-focused website is not likely to have a direct impact on advertisers, but there are still relevant implications. The straightforward access to information, tools and policies aims to assuage artists’ concerns over payments, helping to ensure they don’t pull out of the service. In turn this should support a virtuous circle, maintaining the catalogue, attracting fans and allowing brands to make longer-term bets on the service itself as well as any independent arts they might back for promotional considerations. 

The company’s effort to put up the new artists' site is largely a reaction to criticism from some musicians over the past few months. Recently Radiohead frontman Thom Yorke said “musicians need to fight the Spotify thing”.

The artists who have been complaining about Spotify are usually those who prospered in the CD and record label era, or had a large enough fan base to be able to drive good income from paid-for-downloads on platforms like iTunes. Compared to that business model, Spotify does bring fewer royalties.

Paul Gage, regional planning director, Iris Worldwide, feels the comparison should instead be with illegal downloads and file-sharing that doesn’t bring any revenue to the artist or publisher. “For any new artist, getting paid for work is the hardest thing,” Gage said. “Now artists have a wealth of potential platforms to reach audiences, and Spotify represents an opportunity to tap into the long tail and get actual royalties from the more casual fan who won’t pay for a download”.

According to Edwin Rozells, head of planning, XM Asia-Pacific, more artists would support the discovery proposition of the site, which would lure more fans. However, he believes advertisers would only bite if the holy trinity of smart targeting technologies, audience data and segmentation, and conversation-based advertising models exist. “Spotify is a great solution for the casual listener who is not 100 per cent devoted to music as a passion, yet is interested enough in it to discover laterally, based on artists or songs they currently like,” he added.

Spotify is unlikely to replace the hard graft that is still needed to build a fan base, where some of the more specific music and artists sites will continue to play a vital role, he added.

“From an advertiser perspective, the allure of a site that brings a younger, affluent, entertainment-seeking and hard-to-reach audience is very attractive – especially as an alternative to Facebook, Google and other digital advertising,” Gage observed. 

Gage warns that brands’ activity needs to be contextually relevant to Spotify. Many brands including alcohol beverages, energy drinks, telcos, IT companies and fashion labels have a music platform as part of their brand building. “The real opportunity with Spotify is not to just use it as an advertising platform to reach an audience but as a potential partner for value-add branded content and experiences that augment the typical search and stream activity.”

It is important to note that advertising is not Spotify’s primary revenue stream. Its claims about combating piracy and generating royalties are founded on its ability to convert users into paid subscribers.

At present, the company has 24 million users, of which, about six million are paid subscribers. iTunes has over 575 million users, of which only 75 million pay for music. And YouTube boasts about one billion unpaid users. Spotify also said iTunes is still a preferred tool for listening to pirated music, which generates nothing for artists.

The company’s policy is to pay royalties for all listening that occurs on its service. Spotify gives nearly 70 per cent of revenue to rights holders—including labels, publishers, distributors and digital distributors—retaining about 30 per cent as earnings.

Spotify claims to be the most effective way to monetize music access. To reiterate its point, the company said, it pays artists more than twice the amount popular video services (supported by advertising) pay out and significantly more than both online and traditional radio.

“When Spotify grows to even a fraction of the size of these services, for example to 140 million total users and 40 million paying subscribers, we will increase our total payouts by 5 times,” claims a note on the new site.

“The comparison of royalty contributions per million streams between Spotify and that of US terrestrial radio is quite astounding, and just goes to show that traditional broadcast models struggle to deliver real value in a digital age,” noted Justin Tauber, head of platforms, Profero.

Launched from Sweden in 2006, Spotify has yet to break even. The company debuted its music service in Singapore, Malaysia and Hong Kong in April 2013 and rolled out in Taiwan a few weeks ago.

For Spotify, advertiser interest in Asia has been slow. “Spotify doesn’t fit nicely into a typical digital media or content buy,” Gage said. “More importantly it doesn’t give the scale that Facebook or Google do right now.”

Brands have invested time and effort to build their fan bases and would rather speak to them than try out a new platform. Even brands with a big music component to their strategies are unsure of the ROI they can get from Spotify. “The danger will be if brands see it purely as an advertising platform rather than a partner to build branded music content and experiences,” said Gage.

The challenge will be for Spotify to stick to its principles of building value and being a great service for its audiences, and not be forced to change its model to fit the comfort zone of 'reach and frequency' that many brands and media agencies still want to operate in, Gage added.    


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