Global music subscription service Spotify have announced that they are testing a new function that will allow non-paying users to skip unlimited advertisements, AdAge reports. In an effort to “deliver a more personalised experience and a more engaging audience” to advertisers, the Swedish streaming service are trialling a function in the Australian market that will allow users to skip both audio and video ads as often as they like. Previously, non-paying users were not permitted to skip any advertisements.
Spotify are aiming to use the trial period to collect personalised data on which ads consumers prefer in an effort to tailor ads directly to listener preferences and target specific consumers, thus improving outcomes for brands. This is part of a broader effort by the company to create “personalised experiences” that provide listeners with content tailored to their preferences using fine-tuned algorithms. Another example of this is their popular “Discover Weekly” playlist, a computer-generated individualised playlist that offers new music to each user based on their listening habits.
Streaming giant Spotify is reportedly offering direct licensing agreements to artists.
Spotify latest quarterly report showed an increase of 30% in monthly active users from last year, reaching a total of 180 million, a figure that includes over 101 million ad-supported users in 65 global markets. Their ad revenue is steadily growing year on year, totaling $158 million in the latest report. Although an impressive number, it remains a small slice of a $1.6 billion digital audio advertising market that’s growing all the time. Spotify’s largest competitor in the field is rival streaming platform Pandora, an internet radio service that derives most of its revenue from advertising as opposed to subscription fees. Pandora recently purchased AdsWizz, an audio ad tech platform that provides targeted ad services, for $145 million. Spotify’s latest update could be seen as a reactive move aimed at widening their share of the audio ad market and remaining competitive.
The new feature, named “Active Media”, is a potentially risky strategy – advertisers will not be required to pay for any ads that are skipped by users. This potentially endangers their ad revenue, wagering that despite the ability to skip any ads of their choosing, users will still be willing to hear and see to enough ads for the strategy to be economically viable. Essentially Spotify are prioritising personalisation over-exposure, placing a higher value on the ability to target ads to the right consumers than the opportunity to reach as many as possible. It remains to be seen whether the bold direction will pay off, and with an ambition to roll Active Media out globally following the initial trial, it looks like we’ll find out.