Spotify is no longer the disruptive force it once was now that so much is streamed to devices, meaning there’s greater pressure on its marketing to lift the value people place on music.
It might not sound like much is needed given the brand’s close bond to playlists but what made it great when it was fighting piracy may not be enough now. Apple, Google and Amazon are emerging as real threats to Spotify and unlike those brands it's at risk of being indistinguishable from the competition.
Apple has hardware. Google has advertising. Amazon e-commerce. Spotify’s sole business is music streaming, meaning its relative value is nil because it doesn’t own the content. It leaves the business in a precarious position, where a richer brand could attract a larger number of subscribers and offer some stability.
Part of the solution is to become a faster advertiser. While data is core to Spotify’s ad sales pitch, it’s also pivotal to the brand’s future marketing strategies. Having all that user data makes it easier to work out what types of ads are going to best resonate with them, said Spotify’s chief marketing officer Seth Farbman.
Following a poll that found some (28 per cent) of Americans would consider a move to Canada should Donald Trump become president, Spotify’s marketers found that its users were creating their own ‘moving’ playlists and the top tune was Flo Rida’s ‘My House’. Fast-forward to a few days later and the song was used in an ad (see below) that featured a couple moving their whole house with them.
“The audience itself – not just the scale – but the detail of data we have to know what makes someone tick is our key asset,” said Farbman. “For us, it’s not necessarily about needing to tell a Spotify story. It’s more about telling the music fan’s story.”
Should Spotify consistently tune itself into moments like a rush to create ‘moving’ playlists then Farbman believes its “community” will become a bigger part of what attracts users – both free and paid – to it. Rather than pushing up the revenue per-subscriber, the business seems more concerned with convincing more people to use the service and getting those non-more paying listeners to become subscribers.
Or as Farbman puts it: “We’re seeing more people express their intention to pay for Spotify much sooner – in a matter of weeks. That’s all they need now to know this is the product for them. They’re coming to us with a higher value for music and ultimately that’s why the company was founded. If we can increase the value that people place on music then it will help the artists, the industry and us.”
Getting that message across to listeners appears to be working; while the value of an average Spotify subscription fell 4.5 per cent in 2015, the number of conversions to premium accounts rose 6.5 per cent. And rather than push up the value of an average Spotify subscription, the business is more concerned with expanding its reach to grow the margins from both paid and free listeners.
“Subscription-only models have not yet proven scale and free user models, while scaling, have not proven a path to profitability. Spotify has the combined power of both,” said Spotify in its earnings report earlier this year.
The challenge then is getting a balance between freemium and paid listeners, the former of which remains a speculative and expensive path for Spotify. Some 90 per cent of Spotify’s revenues come from less than a third (31.4 per cent) of its users, who are worth $1.96bn in revenues. By stark comparison, its free, ad-funded listeners generate a relatively meagre $222m.
Upping that sum is why the business was out in force in Cannes, talking up ita ad potential to brands. Where it once used its ad-free music product exclusively as bait for its subscription service, now its leaning much harder into advertising.
Supporting both those business models as a marketer is pushing Farbman to consider how Spotify’s relationship with its artists could be used to inject more value into its proposition.
While it has been accused by the likes of Bjork and Taylor Swift as being exploitative, Spotify has been at pains to quell those concerns over the last 18 months, most notably with the hire of Lady Gaga’s former manager Troy Carter to “protect the voices” of its artists in June. It’s too early to say how his influence will manifest though Farbman believes his new colleague will be “very key” to the future of the brand.
There are also plans to better communicate how Spotify gives “artists tools to run their businesses better”. “We’ve got all this data and so we’re able to help an artist identify their super fans or suggest whether they should be doing tours differently due to the fact that there are concentrations of fans in different cities that otherwise would’ve gone unnoticed,” said Farbman. “There’s an artist for every audience and there’s an audience for every artist.”
To facilitate the step change in marketing, the business has shifted the way it works with agencies. Whereas it used to hire creatives on a project basis now it has a global relationship with Wieden + Kennedy. Not to be outdone by external forces, Spotfy is also staffing up its internal creative team whose members will fuel the brand’s early investments in using traditional channels like TV and outdoor to reach a broader audience frequently.
There are no industries out there where the distribution channels don’t make money. And with Spotify yet to turn a profit the future of the business (and music streaming) rests on its ability to get more money from non-paying listeners through its own content. Working with the likes of Def Jam and actor Tim Robbins, the brand is developing shows that are rooted in music and pop culture, ushering in what it describes as its “second act” later this year.
“We’ve been looking at what other content types the music would fan would enjoy during the course of the day ad short form video – anywhere from just a few minutes to up to five – seems to be working quote well. That’s what the original content will start with and we’ll try different types of series to see what people are responding to,” added Farbman.
It all amounts to Spotify future-proofing its business rather than patching up the cracks. Despite the pressures, the streaming service boasts more than 100 million active users, adding nearly two million each month. Importantly, that user growth is converting into paying users; it finished 2015 with 28 million premium accounts, 31.5 per cent of its active user base at the time (89 million).
“People are coming to Spotify with a clear sense of what it we offer that they want to buy,” explained Farbman. “When you’re a company that has the early adopters or the hardcore music fans then those people still waiting to get into streaming may go for a brand they’re more familiar with. We have to make sure that we’re communicating clearly that you don’t have to spend 17 hours of your day listening to music to get the benefits of having it in your life. It’s the next ring of customers that are now looking at streaming and saying ‘wow its here to stay’ that we need to focus on.”