Spotify's Video Ads Land First Buyers as Debut Approaches

Coca-Cola, Ford, Kraft, Target Among Early Advertisers

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A sample video ad on Spotify's mobile service.
A sample video ad on Spotify's mobile service.

Spotify's video ads are coming.

The music-streaming service will soon roll out its video ad products for marketers, including a mobile product that lets listeners watch a video ad in exchange for a half hour without any further commercial interruption.

Spotify will start testing the video ads in the fourth quarter with a limited number of brands and plans to extend them to all advertisers in the first quarter of 2015.

Coca-Cola, Ford, McDonald's and Universal Pictures have signed on as the ads' first global buyers. Kraft Foods, Target and Wells Fargo will be the U.S.-only launch advertisers.

"We think about video as one of the most dynamic forms of content that advertisers have and that bring great relevance to Spotify," said Spotify's chief business officer, Jeff Levick. "Brands have clearly stated it's of interest."

U.S. advertisers are projected to spend $5.96 billion on digital video this year, according to eMarketer estimates, and $1.44 billion of that spend is expected to go to video ads on tablets and smartphones.

Spotify's mobile video ad makes an advertiser the only marketer to interrupt listening for the following 30 minutes. But listeners have to agree to the bargain: Either watch the video and get a half-hour respite from further commercials, or decline the video ad and continue to listen to standard ad-supported music, audio ads included.

Spotify tried out different lengths for its "Sponsored Sessions," including 15 minutes and an hour, and saw 30 minutes notch the higher opt-in rate, Mr. Levick said.

The Sponsored Session ad is like Hulu's "Branded Entertainment Selector" video ad, which lets viewers opt to watch one long pre-roll ad and then see their chosen show or movie without any more ads. While Hulu deploys a pre-roll that's at least one minute long, however, Spotify is limiting its Sponsored Session ads to 15 or 30 seconds.

Mr. Levick declined to say how much Spotify is charging advertisers for the Sponsored Sessions ads, but said they are being priced at a premium to make up for revenue lost from the ads that don't run in the half hour afterward.

The Sponsored Sessions may eventually make their way to Spotify's desktop service, but there's a reason the company is starting on mobile. "Mobile is the fastest growing traffic for Spotify," Mr. Levick said, noting that mobile now accounts for more impressions and streams that desktop. "It's where we're putting the majority of our efforts into innovating."

Spotify claims more than 30 million users of its free ad-supported service, but Mr. Levick declined to say how that breaks down between mobile and desktop. The company didn't operate a mobile version of its free ad-supported service until last December. That mobile ad business has grown quickly.

"Desktop has historically been the larger source of impressions in terms of where ad revenue is coming from. Mobile in the last nine months has accelerated and become that," Mr. Levick said.

But Spotify isn't ignoring opportunities to make money from desktop. Its coming desktop video ads, dubbed "Video Takeover" ads, will work like regular ads on the service, playing as a visual if someone has the Spotify desktop app in view and otherwise playing as audio only.

Spotify had pitched the new video ads to Cannes attendees in June. As a result of those discussions, Spotify added a post-roll element to the Sponsored Sessions that reminds a user of the brand that paid for the ad-free session e. "That's a direct result of the conversations in Cannes," Mr. Levick said. He added that there's a chance Spotify could use that exit message to lead someone into a second ad-free session sponsored by that brand.

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