Spotify is experimenting with a new advertising unit which lets labels promote single songs as part of a playlist. The ‘Sponsored Song’ adverts have popped up above user playlists and are targeted to match consumer music tastes. As shown in an example by Liam Maloney of the track “Call Me” by NEIKED, the format is no longer a standard banner, but an instantly playable track.
For now, it’s only a test, but the feature could be launched later this year if successful.
Importantly, it appears Spotify has added the option for Premium users to opt-out of seeing the Sponsored Content by changing their settings.
As the music app continues to explore new revenue streams following the announcement of a $389 million operating loss in 2016, Sponsored Songs may able to facilitate greater ad earnings for Spotify.
The format is non-interruptive to the user by blending in with the rest of the app. App users either choose to press play or not and Premium users can even opt-out of seeing the sponsored listing if they want to. On the artist front, it could help boost plays and other content discovery. This in turn may lead to greater ticket and merchandise sales.
Mark Mulligan, Managing Director of MIDiA Research, said:
“This is not the silver bullet but instead part of what will be a multi-faceted answer to Spotify’s margin woes. In a broader context, this may presage a wider strategy similar to that of Facebook’s, whereby it effectively starts charging artists and labels for access to fans.”
As most of the app’s users are not subscribers (90 million out of 140 million) and instead use it for free, Spotify has to find a way to squeeze more money out of the app. Lucky for the company, pay-to-play has become a serious business for many labels as they continue to push their artists to the top of the charts by buying plays and engagements.