The future of streaming content: What role will advertising play?

There was big news in the world of music streaming recently as Spotify UK announced a 42% increase in revenue in 2013, meaning the company has moved to making a profit for the very first time. As well as an increase in subscribers, this is also due to a rise in advertising revenue, so what will be the next steps by Spotify and advertisers and what will this all mean for consumers?

The company’s UK division has gone from an £11 million net loss in 2012 to a £2.6 million net profit in 2013. This, backed by the fact that consumers have streamed 10.2 billion tracks this year, almost double the figure compared to the same time last year, seems to indicate that the trend for streaming content is definitely on the rise.

With such an increase in variety in where consumers can get their music and other media content, brands will have to understand better than ever, where is the most effective place to advertise to reach their target audience. Furthermore, the type and style of advert will have to be carefully considered. Mobile is one key area of interest for streaming services and advertisers with more than 80% of all new Spotify subscribers signing up through their mobile phones. According to Spotify’s Chief of Sales Mr Levick, Spotify’s mobile ad revenue has grown by 900% in the past year. It was also announced recently that Pandora is now offering a similar ad-funded video model, which will roll out on mobiles first, unsurprising given that 80% of Pandora listening is done via a mobile.

30 million active Spotify users represent a potentially massive reach for brands and advertisers, and with advertising being a major revenue stream for Spotify it appears both parties are becoming even more aware of this potential. Spotify has recently introduced a new model of ad-free listening for 30 minutes in exchange for watching a 15-30 second video ad. How well this will work remains to be seen but there are some big brands already signed up including Coca-Cola, Ford, McDonalds and NBC Universal.

So what other trends will emerge? Are there brand and artist partnerships that could use musicians or music content to boost their brand?

The Samsung and Jay Z deal in 2013 worked well for both parties and also for consumers: new Samsung Galaxy owners got access to a free download of his album 3 days before its official release in a deal worth a reported $20 million between Jay Z and Samsung. However, the recent iTunes and U2 deal received a major backlash and after 5 days Apple put a link up online of how to remove the album from your iTunes and Bono even apologised for doing this. It seems a lesson to be learnt here is that people don't want content forced on them. We can be very vocal when it comes to what we consume – and that decision should be up to us.

Spotify is fundamentally a listening experience. It may quite possibly be running in the background whilst listeners are doing other things or in a user’s pocket thanks to Spotify Mobile, so it will be interesting to see how much consumers actually take note of this video ad content. Will this new premium-priced ad funded model pay off for Spotify and advertisers or will we see it fall back into the red? Are video ads going to be too invasive or off-putting for listeners and drive them to competitor services, or will they not take notice of them?

In such a fast-paced industry the next year of streaming music content and digital advertising is certainly going to be an interesting one to keep an eye on.