Spotify bringing sponsored ads to Discover Weekly playlist
Spotify (SPOT) has begun testing a new type of ad format that allows brands to sponsor its Discover Weekly playlist, according to Rolling Stone. The Discover Weekly sponsorship program will allow brands to insert audio or video ads between songs on Spotify’s free service. This move shows that Spotify is stepping up efforts to monetize its free listeners. Microsoft (MSFT) kicked off the Discover Weekly sponsorship with ads promoting its artificial intelligence technology. Spotify’s Discover Weekly delivers a personalized playlist of songs, and it updates every Monday.
Majority of Spotify customers are free listeners
Spotify exited the third quarter of 2018 with 109 million free listeners and 87 million paying subscribers. Pandora (P) and Apple have 6.8 million and 40 million paying listeners, respectively, according to their latest updates. Pandora is in the process of merging with Sirius XM (SIRI) in what could result in stronger competition for Spotify in the music market.
Only 10% of revenue came from ad sales
Spotify monetizes its free listeners by getting them to view or listen to ads. Although the vast majority of Spotify’s listeners are on the ad-supported service, advertising sales accounted for just 10% of the company’s total revenue in the third quarter. Bringing sponsored ads to Discover Weekly’s personalized playlist could help Spotify capture more advertising dollars and diversify its revenue sources. In an effort to reach more listeners, Spotify last year secured a deal that makes it the preferred music app on Samsung (SSNLF) devices. It is also one of the default music apps on Facebook’s (FB) Portal device.
Spotify generated $1.6 billion in revenue in the third quarter.