Spotify's New Mobile Service to Launch With Audio Ads Only

Listeners Will Hear Two Minutes of Ads Per Hour, Says Music Service's Sales Chief

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Spotify is extending its free, ad-supported service to mobile devices as it looks to add new users and challenge for radio advertising dollars.

Until now, the five-year-old streaming music service required users to upgrade to a $9.99 a month premium service to listen on mobile. Now, Spotify is introducing a free ad-supported version for smartphones running Apple's iOS or Google's Android mobile operating systems.

The new mobile service is a compromise between the on-demand service people pay $9.99 a month to use and the free ad-supported radio service already available to Spotify's mobile users. Instead of being subjected to a computer playing deejay, people can choose to hear playlists they have created themselves that would have previously only been available on the ad-supported desktop app or the paid subscription service.

Users won't be able to pick individual songs to hear, though; songs from the selected playlist will play randomly, or in a shuffle fashion. They will be able to skip 6 songs per hour, said Spotify's chief sales, marketing and international growth officer Jeff Levick.

At launch the mobile service will only run audio ads that will total two minutes per listening hour, Mr. Levick said, adding that Spotify users average 110 minutes of listening time per day. By comparison Pandora plays around 3 minutes worth of ads each hour. Spotify is still working out how long ads should be and how many should air in sequence.

Spotify is not selling the new mobile service to advertisers separately from its ad-supported desktop service. "We didn't approach mobile as an exclusive launch for a subset. We're just extending it to advertisers as a way to extend their reach," he said. For now ads will be targeted as they are on the desktop service -- by gender, age, geolocation and music genre -- though "we will be rolling out new targeting options in 2014."

For many people, the limited but free mobile service may be enough for them to stream Spotify instead of competitors like Pandora, iTunes Radio or Rdio that only offer mobile users streaming radio services for free (Spotify's announcement Wednesday that it has secured exclusive streaming rights to Led Zeppelin's catalog for one year may also help). However, Spotify's hope is that the new mobile service will hook people into upgrading to the paid version. Only paid subscribers are able to to stream songs on their computers, tablets or phones without ads and with the ability to listen to those songs without an Internet or cellular connection.

More than 20% of Spotify's listeners convert to the subscription service, Spotify CEO Daniel Ek said during a press event at Spotify's New York headquarters on Wednesday. Spotify has previously claimed more than 24 million monthly active listeners, 6 million of whom are paid subscribers. Mr. Levick declined to provide updated user numbers, but said the service expanded to 20 new markets internationally on Wednesday for a total of 55 markets.

A majority of Spotify's listeners use the free service, which is music to advertisers' ears. However for Wednesday's mobile announcement to resound on Madison Avenue as loudly as Spotify might hope, the service will need to prove it has listeners' ears.

"Agencies and marketers are interested in the platform. However, [Spotify's] mobile consumption is about 20% currently so there is not a lot of scale or opportunity on mobile," said Lauren Russo, senior VP and managing director of audio and promotions at Horizon Media, in an email.

Until Wednesday's roll-out, advertisers have been limited to Spotify's radio service on mobile. Ms. Russo's clients have been purchasing Spotify's radio ads, but she noted those are primarily desktop impressions. She added, "Digital Audio plans are typically considered and evaluated 'bundled' based on how they align with the consumption habits."

Mr. Levick said he expects Spotify's usage to mirror overall mobile-versus-desktop consumption trends over time.

Spotify also announced on Wednesday that it has beefed up its tablet apps. Having observed what Mr. Ek called " a rapid increase of listening on tablets in the home instead of listening on computers," the company is porting the free ad-supported desktop service to the iPad and Android tablets. The tablet apps will now mimic the ad-supported desktop experience, meaning that people can listen to any song at their choosing but will be shown ads and be unable to listen to songs offline.

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