Spotify sees enormous potential for growth in Europe
As streaming platforms become the primary destination for music listening and discovery for more people, the conversation about fair compensation applies to more parties as well. Spotify only gleans advertising revenue from its ‘freemium’ tier, which brings in just 10% of its nearly $1.1 billion in revenue. Most of Spotify’s revenue comes from individual subscribers.
In a response to artists’ and labels’ frustration with their proportionally-reduced cut of this ad-based income, Spotify conducted a Europe-wide study with global market research firm TNS. The study sought to present an argument for the commercial potential of the freemium tier. The report is titled ’The New Audio’ and suggests that radio advertising agencies should buy audio ads within the tier. “We believe there is enormous potential to grow the EU audio advertising market to the scale of the US- – which is worth around $8 billion,” said Spotify’s VP EMEA Jonathan Forster. The EU market won’t swell to these numbers, though, stressed the report, until media buyers stop relying on traditional radio and start investing in Spotify ads. UK Director of Sales David Cooper added
“This TNS study aims to help media buyers understand the quantity and quality of the Spotify audience, and the extent to which Spotify can complement and extend a broadcast media buy. By identifying when and where Spotify reaches an audience that does not engage with radio, we hope to improve both media buyers’ understanding of the audio market, and to grow the audio market as a whole.”
The study surveyed 20,000 respondents about their listening habits across ten European countries. Spotify recommended that 14-21% more incremental reach should be added across the 15-34 age group, especially in the UK market. The report asserts that Spotify is the second largest digital music service in the UK behind iTunes, with Google Play falling into third place. Streaming is growing fast in Germany as well, although physical music remains the most popular format. Streaming is breathing new life into the Spanish music consumption market, where a high unemployment rate has suppressed disposable incomes. Spotify has an impressive 94% brand awareness rating in Spain. Jonathan Forster outlined Spotify’s hope and ambitious belief in the untapped EU radio industry, stating:
“We believe that there is enormous growth potential in the audio advertising industry, not just in terms of the huge opportunity to connect with a hard-to-reach demographic through Spotify, but also in terms of the potential to grow the European market to the scale of the US audio advertising industry – which is worth around $8 billion; exponentially more than that of Europe currently.”
The study, which was paid for by Spotify, was upfront in its self-interested purpose for conducting the study — convincing advertisers to pay the streaming service. However, TNS’ findings collected real and useful data, which contributes to a larger discussion- and many unresolved questions- about how the future of streaming will shape the music industry.